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When Investing Think Emerging Markets

When Investing Think Emerging Markets

Invest in economies growing 1-2% with debt loads as large as their GDP’s?   Or those growing 6-8% with minimal debt? 

Invest where you see greatest potential for growth: Emerging Markets.

2011 tested my emerging market bullishness as they dropped 20% amid the debt crisis in Europe and worries of a slow-down in China.  But compare GDP forecasts for the world’s top 10 economies and their national debt growth rates for 2012.

China and India are the only countries with a GDP growth rate larger than their national debt growth rate.  Brazil and Canada are next.  Every other major economy continues to deliver ho-hum growth with dramatically rising GDP-to-debt rates.

I remain bullish on emerging markets.  They should be a significant part of your portfolio.  Sure, we have to balance emerging market volatility and their increased short-term risk with growth.  Nevertheless, this short-term risk is more than offset by returns that will almost certainly outperform over the long term.

Timing is always key.  Emerging market bulls have done well during the first quarter of 2012.  Opportunistic investors should buy into the dips and use emerging market volatility to your advantage.  Although a ‘hard landing’ in China is still a worry, the fundamentals for China’s long-term growth remain intact.  I think China will find a way to achieve 8+% in 2012.

Bottom Line:  Invest where you see the greatest potential for growth.  Think Emerging Markets

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Thursday Morning Reads: Will Emerging Markets Fall Off in 2012?

Thursday Morning Reads: Will Emerging Markets Fall Off in 2012?

Good morning everyone, hope your all having a great start to your day. Again below are a great list of some top articles to help you start your day off right. Read them and let us know what you think either by leaving a comment below or leave a comment on our Facebook or Twitter.

Will Emerging Markets Fall Off in 2012? (Harvard Blog)

Apple’s BIG Beat (The Big Picture)

George Soros on the Coming U.S. Class War (The Daily Beast)

Mitt Romney is in the Top 0.0025% (The Wall Street Journal)

How Do We Identify Good Ideas? (Wired)

On Economists & Psychopaths (TMTGM)

The End of Mutual Funds (CNN Money)

20 Common Sense Investing Rules (Reformed Broker)

Is Facebook Killing Google? No But… (Jeff Matthews)

How Do We Prioritize When Everything Was Important (Life Hacker)

Economists vs Americans (The Wall Street Journal)

The Yin & Yang of Corporate Innovation (The New York Times)

Just Don’t Lose It (Barron’s)

Meet the Marriage Killer (The Wall Street Journal)

Who Own the World’s Financial Assets? (Wall Street Rant)

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Emerging Markets Are Every Investors Dream Playground: Invest in MMM & EMR

Emerging Markets Are Every Investors Dream Playground: Invest in MMM & EMR

Emerging markets as a whole historically been attractive investment playgrounds for investors.  I personally believe there are many diamonds in the rough out there for emerging markets picks, my two favorites are listed below:

Conglomerate 3M (NYSE: MMM)

Conglomerate 3M (NYSE: MMM) makes materials for about every industry from electronics to health care to mining and construction. Two-thirds of 3M’s sales come from outside the U.S., one-third specifically comes from emerging markets.  Higher management for 3M expects this number to increase close to 50% by 2014.  The company has dramatically increased it’s internal spending on research/development mainly focusing on creating products to go with the flow for emerging markets demand.  If done successfully, this will dramatically increase sales and improve the companies prospective for the future.  Last quarter alone, sales increased 10% as a whole and in sub-sectors like Asia and Latin America they rose 22% and 12% respectively. Overall, I believe 3M will rise to $110 per share in the next 12-months, a total yield of 17%.

Emerson Electric (NYSE: EMR)

Emerson Electric (NYSE: EMR) produces industrial components, electrical power systems, and various products to automate factories. Right now, the company is turning 17 cents on the dollar into operating profit, which is substantially higher than the industry average of 11 cents.  Prices for raw materials are rising across the board, which will dramatically hurt profit margins for both EMR and it’s competitors.  Higher management has taken it upon their own initiative to help combat this problem by launching their own personal line of locally engineered products to sell in both China and India which will help improve profit margins.  Currently, the company is on an aggressive path to double sales in Asia to over $10 billion by 2015.  Adding to this, they plan to increase sales in emerging markets by over 50%. If done correctly both will be great platforms for EMR to grow in the coming years.  EMR’s individual share price has performed exceptionally in the past, the stock has nearly multiplied sevenfold in price over the past 20 years and currently they are selling at 18 times earnings.  Adding to this EMR has a dividend yield of 2.2% making the investment more attractive to outside investors.  As a whole, I believe EMR’s stock will soar in the next 12-months and I see it rising to $70 a share, a total yield of 21%.

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.

Time to Sell Emerging Markets & Get Back into U.S. stocks?  Why Don't You Think Twice!

Time to Sell Emerging Markets & Get Back into U.S. stocks? Why Don’t You Think Twice!

Both China and the U.S. are cooking the books on inflation. That’s hardly surprising.  China’s leaders know too-high inflation will cause social unrest.  So th
ey’re doing all they can to manipulate the data to convince people inflation is under control.

In the U.S., we’re also told inflation isn’t a threat.  So, why does it feel like prices are rising in the U.S. if the official numbers say there’s nothing going on?  Because U.S. government statisticians have their own way of doctoring the data.  If the U.S. still calculated inflation the way it did when Jimmy Carter was president, the official rate of consumer price inflation would be 10%! Another factor creating the impression of low inflation is that food and energy account for a much smaller portion of the CPI in the U.S. than in emerging economies.

What’s all this mean for you?

Investors are re-thinking emerging markets right now.  Money is flowing out of emerging market stocks and back into U.S. markets.  But they’re overlooking two important things:

1) Inflationary pressures hitting emerging markets now are cause for concern in the U.S., too. It’s just that the U.S. government skews the figures toward deflation to make everything appear hunky dory.

2) Authorities in the emerging markets admit inflation is a problem. Many emerging market central banks are raising rates to combat rising prices.  In the U.S., the Fed refuses to admit inflation is even a problem.  This signals problems in the future for U.S. consumers.

The herd is overreacting to the inflation story in the emerging economies.  Think twice before following them back into U.S. stocks.

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter!!!

Should You Invest in Frontier Markets?

Should You Invest in Frontier Markets?

Stocks in the world’s “Frontier” markets returned nearly 20% last year.  Growth in frontier markets is outpacing many emerging markets and trouncing the U.S.  Frontier countries in Asia could grow by 8.4% in 2011, compared to 2.2% expected in the U.S. and Europe.  Frontier markets are quickly becoming a separate asset class from emerging markets.  The Wall St. Journal recently described them as “next year’s darlings in emerging-market investing.”  The economic growth is carrying over to stock markets.

Frontier markets are worth keeping an eye on for risk-tolerant investors who are able to stomach market shakiness in order to reap huge potential gains. They are less liquid and more volatile than emerging markets.  They are often politically unstable and extremely unpredictable.  But potential growth is high.

Markets like the Middle East, sub-Saharan Africa and parts of SE Asia have begun to grow sharply thanks to the commodities boom and business globalization – and could remain on an upward trend for the next 20 years.  Examples of frontier markets include Bulgaria, Croatia, Kazakhstan, Nigeria, Panama, Colombia, Sri Lanka, U.A.E. and Vietnam.

How can you invest in frontier markets?

Frontier stock markets are already outperforming more established emerging markets.  MSCI Barra’s MSCI Frontier Market Index (MXFM) was up more than 18% in 2010, compared with 16% for the broader MSCI Emerging Market Index (MXEF).

Risk can vary dramatically, so it pays to diversify via exchange-traded funds (ETFs).  Regional ETFs like PowerShares MENA Frontier Countries (PMNA), Guggenheim Frontier Markets (FRN) or the Market Vectors Gulf States (MES) are traded on U.S. exchanges. Two additional funds with exposure to frontier markets are the T. Rowe Price Africa & Middle East (TRAMX) and the Eaton Vance Tax-Managed Emerging Markets (EITEX).

Many emerging market ETFs have some exposure to frontier markets.  Two examples are the Vanguard Emerging Market Fund (VWO) – +18.9% in 2010 – and iShares MSCI Emerging Markets Index Fund (EEM) – up 16.5%.  A good source for researching frontier markets it the S&P/IFC Global Frontier Markets Index, which tracks 270 companies from frontier markets.

The Bottom Line

Frontier stocks should be part of any risk-tolerant investor.  However, it’s probably smart to limit your exposure to 10% of your portfolio.  I believe markets like Vietnam and the Middle East hold big potential for ETF investors.

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.

Diversify. Diversify. Diversify Outside the U.S.

Diversify. Diversify. Diversify Outside the U.S.

Too many investors fail to diversify their portfolio outside the U.S. They see emerging markets stocks, funds and ETFs as ‘risky.’  And they see their U.S. counterparts as‘safe’. Baloney. Over the last 10 years, the MSCI United States Index of stocks has lost about 24%.  Meanwhile, the MSCI Emerging Markets Index of stocks has gained over 134%.  It’s U.S. stock markets that are risky — investors who have put their faith entirely in U.S. stocks have lost big time.  Read these articles below to be more informed on emerging markets investment opportunities:

Vietnam Should be on Your Investment Radar

Five Reasons Africa Might be a Winner over the Next 10 Years

Two Currency ETF’s That Are Heating Up the Markets

What Foreign Currency ETF’s to Invest In

Top Ten Global Technology & Telecom Companies

Best Returns Invest in China

Where to Invest during a Slow Recovery? U.S. or Emerging Markets

Sweet Spots in International Equities

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.

It’s 1998 & You’re handed $100K to Invest

It’s 1998 & You’re handed $100K to Invest

It’s 1998.  You’re handed $100,000 to invest.  The catch is you can’t invest in individual stocks.  You’ve got to put it all in an index that tracks the performance of one of the following regions:  U.S., Asia, Canada, Latin America, Australia, Japan or Europe.

What do you do?

If you’d chosen Japan, you’d have made a 7% profit by November 2009.  If you’d chosen Europe, you’d have done more than twice as well – a 20% profit.  And you’d have been much better off putting your money in Canada which would have given you a return of 113%.

But you could have done even better.

If you’d chosen Asia, you’d have made a profit of 179% over the next 11 years.  And, if you’d chosen Latin America, you’d have walked away with a profit of 347%.

You could have chosen to put your $100,000 in the U.S. – the biggest and, some would say, the strongest economy in the world.  Your money would likely have gone into blue chips like Microsoft, Caterpillar, or Wal-Mart, instead of into foreign companies.  You could have bought “Made in the U.S.A.” instead of “Made in Mexico”.  But you would have made exactly zero profits.

Believe it or not, between March 24, 1998 and November 16, 2009, the U.S. S&P 500 went absolutely nowhere.  Not only that, but studies show that owning stocks in international companies can cut your risk in half.  So, if you’re thinking about where to put your money in 2010 and beyond, include some foreign exposure in your portfolio.

But how do you go about investing in the best foreign stocks?

Many foreign stocks simply aren’t available to Americans because of laws and regulations governing the buying of stocks overseas.  One way is to buy a fund that’s listed on a U.S. exchange.  These allow you to capture international growth without traveling outside your hometown.

But there’s another way to capture gains in these fast-growing economies:  ADRs (American Depositary Receipts). ADRs prices are in U.S. dollars, pay dividends in U.S. dollars and can be traded like the shares of U.S.-based companies.  Investing in ADRs has another important advantage:  It allows you to easily diversity away from the U.S. economy and avoid the mistake so many investors made when they bought in 1998 and held on.

America’s accelerating debt & expanding federal bureaucracy are bad for investors.

The prevailing political climate will sink America deeper into public-sector debt and a federal bureaucracy that’s unlikely to be investor friendly.  Developed economies are projected to have rising deficits and debt burdens in the next 5 years, on top of a much higher level of indebtedness, while emerging economies are likely to have falling levels of deficits and debt burdens with already much lower levels of indebtedness.  High debt levels will continue to restrain growth in the West, while lower debt levels will support growth in emerging markets.  Economic growth will be higher in emerging markets as those economies grow from smaller bases.

Asia’s the place to be.

So, if you’re looking to invest in places that offer organic economic growth – based on a savings-and-investment cycle (not rising leverage ratios like in the West) – you have to invest in emerging markets, mainly Asia.  The right emerging markets, like those in Asia, will outperform Western ones over the long haul as they have much better fundamentals.  Pullbacks in Asia should therefore be viewed as buying opportunities.

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.

Invest in Emerging Markets: Brazil, China, & India

Invest in Emerging Markets: Brazil, China, & India

Brazil: Petrobras (PBR); Vale (VALE).  India: Tata Motors (TTM); HDFC Bank (HDB); Wipro (WIT).  China: PetroChina (PTR); Tencent (0700.HK).

Investors looking for international or emerging markets tend to stick to international funds or ADRs  from the so-called “BRIC’ nations of Brazil, Russia, India and China.  But not all BRICs are created equal.  China and Russia have impressive growth rates.  But you have to be more selective in these markets.  China is probably too reliant on stimulus money to boost its economy and there’s evidence of a growing Chinese bubble.  Russia requires you to put your faith in a corrupt oligarchy.  Sooner or later, China and Russia are more likely to suffer from these excesses than their BRIC colleagues, Brazil and India.

You can trade in international or emerging market stocks through the use of ADRs (American Depositary Receipts).  ADRs prices are in U.S. dollars, pay dividends in U.S. dollars and can be traded like the shares of U.S.-based companies.

My personal BRIC favorite is Brazil, the world’s 8th largest economy.  As the U.S. sinks deeper into public-sector debt and federal bureaucracy, Brazil has had huge success in reducing public debt and the level of bureaucratic control.  Brazil restructured its finances years ago and is now in far better shape in terms of debt than the U.S., Japan and most of Europe.  Brazil also has huge oil reserves and a fast-growing domestic market – which means it’s less dependent on exports to declining markets in the U.S. and Europe.

Brazil ADR picks:  Petrobras (NYSE: PBR): Brazil’s largest oil and gas company.  Vale (NYSE: VALE): Brazilian metals & mining company, also a producer of iron ore.

India is Asia’s 3rd largest economy and has maintained strong economic growth through the global financial meltdown, managing to post an impressive growth of 6.7% in 2008-2009.  The IMF projects 2009-2010 growth at 6.75-7.5%%.  This is a fall from the 10% growth rates India enjoyed before the global financial meltdown, but India remains one of the fastest-growing economies in Asia.  Just compare this with estimates of 2010 U.S. GDP growth of only 1.5%.  The best way to capitalize on growth in India is by investing in Indian banks.  Although its economy doesn’t grow as fast as China’s, the banking system operates independently of the government so the loans are higher quality and there’s no forced lending.

India ADR picks: Tata Motors (NYSE: TTM): India’s biggest car manufacturer, maker of the Tata Nano, the cheapest car in the world.  HDFC Bank (NYSE: HDB): One of India’s better-managed banks, this stock’s enjoyed a tenfold gain since 2002.  Wipro (NYSE: WIT): leading tech services group with strong earnings surprise history, recently opened in Brazil.

I continue to be positive on China in spite of increasing talk of a jittery China bubble.  Many portfolios are now underweight on China.  China’s mid-to-long-term outlook is bright and it will enjoy higher growth than India, but expect more volatility, so you need to be very selective and/or perhaps more speculative with your picks.

China ADR picks: PetroChina (NYSE: PTR): China’s largest listed oil company, up 35% over past 12 months but growth to continue, benefiting from higher crude prices & rising energy demand.  Tencent Holding (HKSE: 0700.HK): biggest Internet company most people outside China have never heard of, hundreds of millions users for its IM service, market cap of $38 billion bigger than Yahoo & twice the size of Baidu.  Likely to benefit from Google’s China departure, but beware:  This is a volatile speculative play.

Don’t be a stranger leave a comment below and let me know what you think or send them to my Twitter. Also remember to sign up for Stocks on Wall Street’s Monthly Newsletter.

Imagine it’s 1998 & you’re handed $100,000 to invest

Imagine it’s 1998 & you’re handed $100,000 to invest

It’s 1998.  You’re handed $100,000 to invest.  The catch is you can’t invest in individual stocks.  You’ve got to put it all in an index that tracks the performance of one of the following regions:  U.S., Asia, Canada, Latin America, Australia, Japan or Europe.

What do you do?

If you’d chosen Japan, you’d have made a 7% profit by November 2009.  If you’d chosen Europe, you’d have done more than twice as well – a 20% profit.  And you’d have been much better off putting your money in Canada which would have given you a return of 113%.

But you could have done even better.

If you’d chosen Asia, you’d have made a profit of 179% over the next 11 years.  And, if you’d chosen Latin America, you’d have walked away with a profit of 347%.

You could have chosen to put your $100,000 in the U.S. – the biggest and, some would say, the strongest economy in the world.  Your money would likely have gone into blue chips like Microsoft, Caterpillar, or Wal-Mart, instead of into foreign companies.  You could have bought “Made in the U.S.A.” instead of “Made in Mexico”.  But you would have made exactly zero profits.

Believe it or not, between March 24, 1998 and November 16, 2009, the U.S. S&P 500 went absolutely nowhere.  Not only that, but studies show that owning stocks in international companies can cut your risk in half.  So, if you’re thinking about where to put your money in 2010 and beyond, include some foreign exposure in your portfolio.

But how do you go about investing in the best foreign stocks?

Many foreign stocks simply aren’t available to Americans because of laws and regulations governing the buying of stocks overseas.  One way is to buy a fund that’s listed on a U.S. exchange.  These allow you to capture international growth without traveling outside your hometown.

But there’s another way to capture gains in these fast-growing economies:  ADRs (American Depositary Receipts). ADRs prices are in U.S. dollars, pay dividends in U.S. dollars and can be traded like the shares of U.S.-based companies.  Investing in ADRs has another important advantage:  It allows you to easily diversity away from the U.S. economy and avoid the mistake so many investors made when they bought in 1998 and held on.

America’s accelerating debt & expanding federal bureaucracy are bad for investors.

The prevailing political climate will sink America deeper into public-sector debt and a federal bureaucracy that’s unlikely to be investor friendly.  Developed economies are projected to have rising deficits and debt burdens in the next 5 years, on top of a much higher level of indebtedness, while emerging economies are likely to have falling levels of deficits and debt burdens with already much lower levels of indebtedness.  High debt levels will continue to restrain growth in the West, while lower debt levels will support growth in emerging markets.  Economic growth will be higher in emerging markets as those economies grow from smaller bases.

Asia’s the place to be.

So, if you’re looking to invest in places that offer organic economic growth – based on a savings-and-investment cycle (not rising leverage ratios like in the West) – you have to invest in emerging markets, mainly Asia.  The right emerging markets, like those in Asia, will outperform Western ones over the long haul as they have much better fundamentals.  Pullbacks in Asia should therefore be viewed as buying opportunities.