10 global blue chips to own for 2007

By Jim Jubak

The world's economies are out of sync -- just in time to give investors looking for a way to escape the anticipated 2007 slowdown in the U.S. economy a profitable place to park some money. The economies of China, India, Europe and even Japan are set to outgrow the U.S. economy next year, and those stock markets are likely to outperform Wall Street.

But if you want a piece of that global action, you'll need to put some chips on the table -- global blue chips, that is. In 2007, at least, cyclical global commodity producers of coal, iron, copper, etc., and industrial-infrastructure plays in construction equipment or power plants, should take a back seat in your global portfolio to the shares of overseas companies with a global reach that do most of their business in the thriving domestic consumer economies of China, India, Europe and Japan.

In this column, I'll name 10 global blue chips to own for 2007.

U.S. no longer the driver

In my most recent column, "Take your portfolio overseas for 2007," I explained that after years in which the United States powered the global economy, it's now the turn of the rest of the world to drive the pace while the U.S. economy takes a breather.

Europe has trailed the United States in economic growth for as long as I can remember, but in the second and third quarters of 2006, growth in the European Union actually outpaced growth in the U.S. economy, and projections call for the European Union to do the same in 2007. In 2006, Japan finally escaped the deflationary spiral that produced the "lost decade" of the 1990s. Japan's recovery is still fragile, but right now the Paris think tank Organisation for Economic Co-operation and Development (OECD) is projecting 2.2% growth in Japan for 2007, quite probably enough to outgrow the United States, which may finish 2006 with a 2% growth rate.

It looks like the Indian and Chinese economies won't disappoint next year, either. India, according to the Asian Development Bank, will grow by 7.6% in 2006 and 7.8% in 2007. China's government projects that the nation's economy will grow by 10.5% in 2006, faster growth than the 10.2% in 2005, and then "slow" to 9.5% growth in the first half of 2007.

The markets have changed

And, I argued in that column, this economic performance is likely to hold up even if the U.S. economy slows. There are two reasons: First, in the past five years, global export patterns have changed so that Europe is now as big a customer for China as the United States is, and intra-regional trade in Asia is more important than trade with either of those faraway markets. Second, the domestic economies of Asia have grown to the point where most growth in China and India -- and Japan -- now comes from spending by domestic consumers.

For those two reasons, I've emphasized companies that derive the bulk of their revenues not from exporting to the slowing U.S. economy but from the domestic markets of Europe and Asia. I've chosen to focus on big companies in this list because, (1), the shares of big companies provide a little more safety in what is likely to be a volatile year, and (2), it's hard for U.S. investors to follow anything but the biggest overseas companies and I'd prefer that you be able to do your own due diligence on as many of these as possible rather than take my recommendations on faith.

So here's my list of 10 global blue chips for 2007 (in alphabetical order):

Iberdrola (IBDRF, news, msgs): More economic growth in Europe means a need for more electricity in a region where building new power plants runs smack into caps on pollution and carbon emissions.

Iberdrola, Spain's second-largest utility, can provide the extra power without the emissions, thanks to its wind farms and nuclear power plants. The utility now owns all or part of six nuclear power plants in Spain. And Iberdrola, the world's largest operator of wind farms, projects better than 55% growth in renewable generating capacity by 2009.

The company, which has an 11% share of the electricity market in Brazil and is the largest independent generator in Mexico, has recently announced wind-farm deals in Turkey, Portugal and Eastern Europe.

Icici Bank (IBN, news, msgs): The company's slogan should be, "Bringing modern retail banking to a developing India." As of March 31, 2006, Icici Bank had a network of more than 614 branches and 2,200 ATMs across India. In the quarter that ended Sept. 30, savings deposits grew by 86% from the same quarter in 2005 and retail loans grew by 57%.

The growth wasn't limited to urban areas, either; rural credit grew by 75%. The company is busy adding new financial products such as life and general insurance to sell to this customer base. The company's life insurance venture saw 61% year-to-year growth and general insurance grew by 50%.

Kookmin Bank (KB, news, msgs): Kookmin Bank is a safe way to buy China's growth -- if the company can complete its acquisition of Korea Exchange Bank in 2007. The deal would transform Kookmin, the largest retail bank and lender in Korea, into the country's dominant bank for foreign exchange and the financing of foreign trade.

Unfortunately, the deal is hung up in a government investigation into the seller of Korea Exchange Bank, Lone Star Funds, a Dallas-based buyout fund. Lone Star executives have been accused of manipulating stock prices as part of an acquisition involving Korea Exchange Bank. No one knows when the investigation will be over, but Kookmin Bank's deal to acquire Korea Exchange Bank is hung up until it is.

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