by Bryan Perry | June 11, 2012 11:00 am
There are no guarantees when it comes to the stock market. But there is one certainty these days: Any bad news from Europe will kill stocks.
Whether it’s the ongoing threat of a bank failure in Spain or more fears about Greece leaving the euro, investors are tossing the baby out with the bathwater and turning to “safer” investments. Capital is camping out in the U.S. dollar and bonds, as well as in German bonds as investors wait for the eurozone to get its fiscal house in order.
The euro has been hammered, pushed recently to a two-year low of $1.24. And because of this, we’re also seeing emerging market currencies pull back in sympathy with the euro. Now, that’s not fair, is it?
Here you have an emerging economy that’s posting 5% to 6% GDP growth, has low inflation rates and no debt on its balance sheet … yet the value of its currency is dropping?
The reason why this is occurring is that the history of emerging markets has been littered with Banana Republics, hyperinflation and politically motivated governments that have nationalized businesses or were overthrown by military coups. History shows an unstable environment.
But in the past decade, these emerging economies have turned it around, embracing U.S. economic standards. Their leaders have been educated in America’s finest business schools. Their governments are now pro-democracy and transparent. And many deal in foreign markets as part of the World Trade Organization (WTO) and NAFTA treaties.
The tide is changing.
In fact, who do you think is buying all of our Treasury bonds when we come out with trillions of dollars of debt every two to three months? Emerging economies like Brazil, Indonesia, Malaysia, Turkey, Australia and New Zealand.
Emerging economies are quickly moving up the food chain among the world’s most powerful economies. India, for instance, is likely to pass the U.S. in GDP terms in the next two decades. China already has in several industries.
We’re seeing an incredible transformation in the balance of economic power — and we have the opportunity to take advantage of this shift while the rest of the world is looking in the other direction.
The opportunities I find compelling right now are in emerging market debt. As Standard & Poor’s and Moody’s are downgrading the very solvent ratings of the U.S. and eurozone, these credit agencies are upgrading the future creditworthiness of places like Brazil, Turkey, Malaysia, Indonesia, the Philippines — just to name a few.
You see, it’s a great time to buy emerging market currencies in their local denominations while they’re down and out of favor, unfairly punished because of the eurozone crisis and the flight to safety to the U.S. dollar.
The best way to invest in these currencies is to focus on a select few diversified closed-end funds that are denominated in local currencies and are professionally managed by U.S. fund managers.
If you’re interested in emerging market debt, diversifying away from the U.S. dollar (U.S. 10-year Treasuries are paying a mere 1.62% yield!) and profiting from strong countries that aren’t saddled with a lot of debt, I have two funds for you today.
WisdomTree Emerging Markets Equity Income Fund (NYSEARCA:DEM) gives you great exposure to the world’s emerging markets. Its top 10 high-yield holdings are from regions like China, Brazil, Taiwan and Malaysia. And its current dividend yield is around 4% to 5%.
The other fund I like is AllianceBernstein Global High Income Fund (NYSE:AWF), which focuses on high-income plays in developed and developing markets. It currently carries a high 8% to 9% yield, depending on where you buy it.
Bryan Perry is the editor of Cash Machine, a weekly financial advisory that focuses on high-yield investments that provide cash payments month after month—no matter what happens in the stock market and global economy. In his brand-new report, 18 Breakout Payout Stocks that Will Pay You Up to 15% Annually Guaranteed, Bryan names 18 stocks and funds that will pay you up to 18% annually, as well as all the details on how to get started collecting fat income paychecks month after month. To access your FREE copy, go here now.
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