Oh yeah and there’s a China slowdown, trouble in Europe, unrest in the Mideast … and so on.
Well if you’re unsure where to park your cash, there’s a whole flavor of assets that served investors well a few years ago: Emerging market stocks.
Now is perhaps the best time to get reinvested in high-growth emerging markets. Though they have fallen out of favor with investors, it is worth considering taking another trip south (or east or whatever) with your money. Here’s why:
Click to EnlargeWhat China Slowdown? A recent Bank of America (NYSE:BAC) fund manager survey suggests that Asia-Pacific investors are getting more bullish on China: They “boosted their OW in China to the second highest level on record (data since 2005), as expectations of a Chinese ‘hard-landing’ remain relatively subdued.” Just look at this chart to see how much Asian investors prefer China to the alternatives.
- Beijing has Deep Pockets. In case you missed it, China just announced a nearly $1 trillion stimulus program focused on transportation and infrastructure investment. That announcement is boosting many related companies, including Western stocks with a presence there. Caterpillar (NYSE:CAT), for instance, has predicted a 2013 turnaround for China in part due to a massive infrastructure investment paying off in Asia.
- When China heals, so do most emerging markets. Why all this talk about China to start? Well, because many economists believe that a stabilizing Chinese economy would lift all emerging-market equities, most notably in key partner nations like Hong Kong, Brazil and Indonesia.
- Latin Ameica is Red Hot after QE3. The MSCI Latin American stock index soared 5% last week thanks to QE3. Why? Because many experts — including PIMCO’s Bill Gross in this Bloomberg video clip — believe the policy is focused on low rates and higher employment at the cost of inflation. Latin America is very focused on commodities, from base metals to fossil fuels, and these goods are most sensitive to inflationary pressures. That means bigger profits for companies there dealing in commodities.
- Emerging Market Policies Becoming Comprehensive. One of the best things about this rough run for the last few years is that emerging-nation governments have had to understand the complexities of global markets, too. And unlike policy makers in the U.S. or Europe, the emerging market leaders typically have more fiscal tools to work with and less headaches getting approval from the electorate. As Jim Paulsen, strategist at Wells Capital Management, tells MarketWatch, “Now you have the entire emerging-policy community working on your portfolio bet.”
- Institutional Money is Getting In NOW. I won’t call it the “smart” money, but it’s worth noting that big funds are moving back into emerging markets. Just look at this video of Steve Jacobs, chief executive of BTG Pactual, where he predicts institutional investment in emerging markets will increase from its current 5% to 10% portfolio makeup to as much as 20% in the next five years.
- Not Mega-Growth, But Mega-Value in BRICS. Barrons recently did a Q&A with the co-manager of the $400 million-asset JPMorgan Emerging Economies Fund (MUTF:JEEAX), and he pointed to value plays in China, Russia and elsewhere after some rough years. Russia in particular looks “chronically cheap,” as does Chinese PC-maker Lenovo (PINK:LNVGY).
- Beyond BRICs, Outlook is Bright. There are a host of clever acronyms these days for emerging markets other than Brazil, China, India and Russia. Take the MIST nations — Mexico, Indonesia, South Korea and Turkey. The iShares MSCI Turkey Index Fund (NYSE:TUR) is up almost 40% year-to-date thanks to proximity to Western markets in Europe, but a cheaper and more competitive labor market. A similar alphabet soup opportunity is in the CIVETS — Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. And the Global X InterBolsa FTSE Colombia20 ETF (NYSE:GXG) is up almost 20% year-to-date. So while China remains king of the emerging markets, don’t fail to branch out.
- Where Else Can You Go? A lot of folks are simply ready to rotate out of defensive domestic blue chips. But where can you go, other than maybe cyclical stocks in the U.S. or Europe that bank on a recovery in consumer and business spending? If the money is going to move, emerging markets are as good a bet as any.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.