Global uncertainty stemming from European debt contagion and slowing economic growth world-wide has prompted an exit from overseas markets. The stuttering of the global economy has sounded an alarm for investors who placed funds in China, India, Brazil, Taiwan and South Korea. The recent economic news has led jittery investors to withdraw over 20 percent of their interests in these nations, arguably more than necessary considering balance sheets for the nations remain healthy and there’s still plenty of healthy growth.
Investors exiting the risk have created new buying opportunities that will allow for impressive margins in the coming months and years. There are several incentives for purchasing emerging markets over traditional domestic safety investments such as gold and treasuries.
1) Currencies are strong: While the dollar and euro have been collapsing and driving gold to record highs, the currencies in emerging markets are actually rising. The Brazilian real added 0.5 percent against the dollar in trading last week and is up an impressive 4 percent for 2011.
2) Healthy balance sheets: The balance sheets in the U.S. and Europe are fast losing their appeal. A slashed credit rating and towering debt are plaguing the U.S. while debt contagion continues to threaten European nations. The same cannot be said of the fast growing Asian markets which boast impressive reserves. The reserves are a product of the on-going saving and manufacturing within the Asian nations, a tradition the U.S. and Western Europe long-ago left behind.
3) They’re undervalued: Global growth data paints a scary picture and while the state of the international economy will have an impact on these emerging nations, growth remains strong. Current share prices though, since the recent decline, do not appear to support this. The fear mongering regarding global growth has weighed heavily on emerging markets, but they are gearing up to become a potential safe haven as domestic growth wanes and the U.S. continues to struggle with unemployment and a weak housing market. Meanwhile, emerging nations are rich with growth, making them a value opportunity, especially at these levels. Current expectations are that Brazil will grow 4 percent this year, while China's economy is anticipated to increase by 9 percent and India is expected to expand 7 percent. Indonesia is up more than 20 percent for the year. The speed will help to multiply investments over a short period.
4) Diversification: Several ETFs are available that track the growth of a broader range of emerging nations with ProShares Ultra MSCI Emerging Mkts (EET) among them. Investing in a fund like these is an interesting strategy in that each market offers its own unique benefits and short-comings. Inflation may be an issue in China but it has less of an impact on other nations like South Korea. Meanwhile, some nations have greater exposure to weakness overseas than others and investing in a mixed bag offers increased protection in the same way diversifying a portfolio of domestic stocks would.
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