International Investing – Profit From Emerging Markets
I’m not sure if you got the reference in my title. It’s my take on a semi-famous saying from famed investor Warren Buffett. He once quipped about the poor economy… (and I’m paraphrasing here) it’s only when the tide is out (the economy’s bad) that you see who’s been swimming without a bathing suit.
You’ve got to love Warren’s sense of humor.
So to take his famous saying one step further, I’m seeing the tide start to shift. And now’s the time to hold onto your bathing suit. What am I talking about?
Fear is slowly being replaced by greed in the markets. This means we’re starting to see assets shift out of very conservative investments and flow into riskier higher yield investments. Getting ahead of this wave of change is going to be paramount to making money.
So everyone has a few questions I’m sure. Let’s address a few.
First, where is this money flowing to?
This is an easy one. Just crack open your copy of Barron’s, the Wall Street Journal, or pay a visit to your favorite financial website. Take a quick look at the international markets. All last year, the global markets table looked horrible. Not a single market was up… not one.
What do we see today?
Look at the performance on these markets… Caracas up 24%, Tel Aviv up 22%, Taipei up 25%, Shanghai up 45%, Sao Paulo up 21%. Another handful of markets are up more than 10%.
It makes the 11% loss in the Dow we’re sitting on now look ugly.
Clearly some risk appetite is back into the markets. Why?
Simply, fear is subsiding. It’s been a while since we’ve had a company or government agency yell the sky is falling. Banks are once again making money (at least some of them) and the amount of stimulus being pushed into the global economy is mind boggling.
Just think about it. Would you rather invest in the US economy, where growth is normally 2 or 3 percent a year, or would you put money into high growth opportunities… like China growing at 9%+ per year. Of course, you want to invest for growth.
So are we guaranteed the worst is over? No, of course not… but we’re starting to see investors nibble at investments that will generate big returns if the worst of the crisis is behind us.
So, how can we profit from this shift?
Well, once investors really believe the worst of the recession is over, money will flow out of the US Dollar. Currently, money is flowing into the dollar because of its safety. Once that reverses, watch out…
The value of the US Dollar is going to fall. A declining greenback will cause commodity prices to move higher and inflation to rear its ugly head. This can only be prevented if the Fed reacts quickly enough (but that’s another story).
With money flowing out of the dollar, the value of other currencies will rise. This will make international investments all the more profitable.
One easy way we can profit is by investing in foreign currencies. Just yesterday I made a trade in my Currency Options Insider service… I’d like to share that pick with you, but it wouldn’t be fair to paying subscribers.
So here’s another way. You can buy foreign stocks. As the US Dollar falls in value, the relative value of these stocks will increase… even if they don’t move higher.
Now picking individual stocks can be a bit risky. That’s why I take the easy way out. I prefer to invest in foreign ETFs.
Take a look at the iShares MSCI Emerging Markets ETF (EEM).
This ETF invests in a number of international companies… it holds stocks like Brazilian Petroleum Corporation (from Brazil), Gazprom (from Russia), and Chunghwa Telecom (from China). All told, the ETF holds stock in more than 340 different companies… all in emerging markets. Trust me, it’s difficult to get diversification like that on your own.
EEM has rallied some 40% in the last few weeks. It’s trading well above the 50-day moving average, which by the way just turned upward. It’s also reaching up towards its 200-day moving average. When it crosses the 200-day moving average, it’s a big sign the ETF could continue moving higher.
Take advantage of the coming weakness in the US Dollar. Now’s the time to add an international component to your portfolio. Consider picking up shares of EEM on any pull backs. This is one investment that could run for years…
Category: Foreign Markets
