Federal Reserve To Cut Interest Rates

| October 31, 2007 | 0 Comments

Today, the Federal Reserve Board, lead by Chairman Bernanke will be making an announcement.  The entire world is expecting a rate cut of one quarter of a percent, based primarily on continued struggles in the real estate industry, and slowing economic growth.  No matter the decision, the news does not bode well for the US economy.  A rate cut will further drive down the value of the dollar as international investors seek out higher interest rates elsewhere.  No rate cut, indicates that inflation is on the horizon, and the potential for higher prices across the board will impact not only consumer spending but also corporate margins and earnings, potentially sending the markets over the cliff.

So what do we do?  We look overseas.

Last week in my article “Overexposed on International Exposure”, I talked about how prevalent foreign goods are in the US, and how some exposure internationally is a good thing.  Apparently I’m not alone, Warren Buffett is all over the news these days – the topic – his travels overseas, and his focus on investing there.

“We’ve bought some international stocks this year and we were buying them last year” Warren Buffet said when asked about his international investing.

So you aren’t Warren Buffet.  You don’t have billions to invest.  How do you participate in the markets that are growing around the world?  My preference is to look to ETFs that mirror the emerging markets in the countries where we would like to invest.

MSCI South Korea Index Fund (EWY) is an ETF that focuses on the South Korean markets.  This is an area that Buffett himself has indicated is poised for long term growth over the next 10 years or more.  The fund holds a basket of 102 South Korean stocks, some familiar names include:  Samsung, Hyundai, and Korea Electric Power.  This ETF has More than $2.8 billion in net assets, and an expense ratio of .70%.

FTSE/Xinhua China 25 Index Fund (FXI) is an ETF that focuses on the Chinese market.  This ETF is extremely volatile, so invest with care.  In the last few months alone, the price of this ETF has doubled.  China is growing at somewhere around 7 or 8% per year (and just as a data point from 1994 to 2004 the country grew GDP by more than 9% per year), and the companies held by this fund are no doubt poised to grow just as rapidly.

The last international ETF we will look at is MSCI Brazil Index Fund (EWZ). Brazil is widely viewed as the economic engine for South America.  According to the Economist, Brazil is the 14th largest country as measured in GDP, and the largest in all of South America.  Their growth will be an economic engine in an area where many people don’t normally look to invest.

International investing can be a great way to supercharge your portfolio.  However, don’t forget to use proper position sizing and stop loss orders when investing internationally.


Category: Bonds

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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