Global Investing
Global Investing
Savvy global investors are finding the top-performing investments - cutting through the censorship, the red tape, and the overwhelming number of available investments - and opening the door to the world’s easiest and safest generators of automatic wealth. See what some of our experts have written about offshore investing opportunities below. You can learn more about global investing, tax havens and offshore banking in The Sovereign Individual each month by becoming a member of The Sovereign Society. Click here for details on membership.
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Forget Stagflation, Recessions & Foreclosures: Park Your Assets
in the One Sector Poised to Profit
By Thomas Fischer
Since the sub-prime crises hit the markets in August, we’ve all seen more than our fair share of volatility and risk aversion.
All major markets have experienced major corrections. In fact, many markets have lost all the gains made in 2007. Going forward, it looks like most investors will be walking on egg shells to stay in these risk-laden markets. But that doesn’t mean you should.
What’s Coming in 2008 Anyway?
I believe that the sub-prime crises will continue in 2008.
Many adjustable rate mortgages issued in 2006/07 are up for some nasty changes in the first two quarters of 2008. These changes will ultimately lead to consumers tightening their belts to avoid foreclosure.
Furthermore housing prices are under a tremendous strain. Homeowners with fixed mortgages won’t be able to use their homes as a license to spend anymore. Consumer spending accounts for almost 70% of the United States’ GDP. That means the U.S. growth rate will fall in 2008.
In my eyes, the Fed doesn’t have a lot of options. They can either choose lower growth calls for lower interest rates or raise inflation for higher interest rates. In a word: Stagflation.
Bet on Nasty Weather to Beat the Nasty Markets
As if the markets weren’t bad enough, the weather has become rather nasty recently. Nowadays, we see storms, hurricanes, torrential rain, severe snow, flooding etc. all affecting our daily lives.
In Denmark, for example, we have problems dealing with how much rain we receive. We’ve had to replace major parts of our sewer/drain system to cope with the rainfall.
A round the world motorways, bridges and infrastructure need to be updated. This infrastructure must be extended to reconstruct this wear and tear.
Should the U.S. end up with a recession we might see a “Japanese solution.” When Japan went into recession in 1989, the government tried to infuse the economy by building bridges, motorways and other building projects.
It never worked for the Japanese — partially because they focused on supply (construction) and did not meet the consumers’ demands.
However the U.S. labor market is much more flexible than Japan’s. Repairing old run- down bridges, motorways, power plants, etc., could actually help the U.S. economy, and will boost infrastructure around the world.
A Built- In Investment Theme
Countries worldwide are building new infrastructure. The Russians are using their re venues from oil and natural gas to rebuild their infrastructure. In Dubai, you can’t see the sky through the cranes — they are building a new “Las Vegas” in the desert. Add in the enormous activity in China — and you have an enormous investment opportunity in infrastructure!
Right now, my favorite infrastructure play is [click here to continue reading]
Discover the NEW Emerging Market for 2008: Gulf Nations Will Bypass the BRICs this Year How to Invest Now Before this Market Goes Mainstream
By Mike Burnick
It’s no surprise that emerging markets topped the best performer’s list in 2007. China, India,
Brazil, etc. all achieved spectacular returns last year.
In fact, emerging markets have been setting the investment world on fire for the past six straight years — outperforming the U.S. S&P 500 Index each year since 2002.
Because of this red hot performance, many investors wrongly believe emerging markets are too overbought to invest now. While that may be true for certain markets, you just can’t paint ‘em all with the same brush.
In fact, there’s one emerging market in particular that actually suffered through a steep correction in 2006, before snapping back last year. This market is one of the world’s wealthiest regions and produces the world’s most valuable commodity…
Naturally, I’m talking about the Persian Gulf States of the Middle East — specifically the Gulf Cooperation Council (GCC) nations of Saudi Arabia, Bahrain, Kuwait, Qatar, Oman and the United Arab Emirates (UAE).
The Hottest Middle Eastern Markets Are
In fact, at the beginning of last year the GCC stock market had a bargain-basement P/E ratio of less than 12-times earnings. And it’s forecasting a 20% profit growth for this year.
And GCC growth prospects look very bright indeed for years to come. Growing tourism, manufacturing and financial service sectors are expected to contribute to this already diverse economy.
A Windfall of Oil Wealth
Of course, these nations have grown rich in recent years thanks to soaring crude oil prices. But what you may not know is this region’s stock market values are still a bargain — especially when compared to some of the higher-profile emerging markets.
From 2002 to 2006, annual GCC revenues from gas and oil more than doubled to US$325 billion per year. That’s an energy wealth windfall of US$1.5 trillion in just four years!
The GCC has wisely used its energy windfall to pay down debt, bringing their debts down to just 15% of GDP. The GCC also used their energy wealth to invest in the non-oil growth initiatives.
In fact, GCC nations have announced aggressive plans to invest in infrastructure, industrial, healthcare and education sectors of the economy.
GCC Stock markets have grown an average growth rate of 39% per year since 2001. Today, the total value of all GCC equity markets is larger as a percentage of GDP than even the most popular emerging markets, such as China and India.
Correction = Bargains!
Following spectacular gains of 103% in 2004 and 102% in 2005, the UAE market recently suffered a sharp correction. The GCC markets fell over 50% from its peak in late 2005 to last year’s low.
The sell-off in GCC stocks was due to concerns about high valuations and earnings growth. Also, rising geopolitical tensions in the Middle East played a role. At its peak, the UAE market was priced at nearly 30 times earnings.
Today, however, these leading emerging markets offer very attractive valuation.
Now 27% Below Their Average! Ready to Break Away from the Buck
Most GCC nations have currencies still pegged to the U.S. dollar. It’s been an arrangement of convenience, because their main export (crude oil) is priced in U.S. dollars. But the dollar’s sinking value in recent years has spurred inflation in GCC nations.
Last year, Kuwait became the first GCC nation (although certainly not the last) to cut its formal peg to the U.S. dollar. Kuwait policymakers opted to peg their currency to a basket of currencies instead.
This move makes perfect sense because Kuwait and the rest of the GCC countries import far more goods from Europe and Asia than from the United States. And the cost of imports kept escalating as long as Kuwait was tied to the buck.
That was stoking inflation fears. Now, Kuwait enjoys a more favorable trade balance with the EU, not to mention lower inflation. The result has been a booming stock market that soared over 30% last year, after Kuwait dropped its dollar peg in May.
Eventually, the entire GCC may switch to a basket of currencies, like Kuwait. When this happens, it should provide a bullish upside catalyst to GCC stock markets.
It’s Not Easy, But It’s Worth It
Unfortunately for U.S. investors, it’s difficult to invest directly in the extraordinary upside potential of the GCC. There are several mutual funds, and some exchange traded funds that have a partial allocation to this undervalued emerging market. But “pure plays” are hard to come by.
However, there are some alternatives open to global investors, especially if you have already established an offshore tax-deferred vehicle like an offshore IRA or annuity.
One of the most attractive vehicles is an open-end fund managed by Shuaa Asset Management, a leading investment firm based in Dubai. It’s called [click here to continue reading]
Thanks Ben! Why Fed Easing Should Add Even More Fuel to
Red Hot Emerging Market Gains
by Mike Burnick
In response to gridlocked credit markets this summer, the U.S. Federal Reserve dusted off the
old playbook and rushed to the rescue with a half-point cut in the fed funds rate on September 18.
This is the same old Fed response made famous in the Greenspan era when faced with financial crisis...fire up the printing presses and create more easy money! It’s no coincidence how markets responded in the immediate aftermath of the Fed’s easing:
The dollar fell to a new record low against the euro — having now lost 60% of its value (and counting) against the euro since 1999.
Gold surged past US$735.50 an ounce — a 27-year high not seen by investors since 1980.
Crude oil also touched a record high above US$84 a barrel, during a run that saw prices hit new highs for seven days in a row.
Emerging market stocks soared to fresh record highs just days after the Fed’s move.
Do you see a pattern here? I sure do. It’s clear that if the Fed is intent on pursuing an easy monetary policy, then the “reflation” trade is back on in spades. In other words, the asset classes that have been investors’ best friends over the past several years are likely to surge even higher, as the dollar plunges and the U.S. economy muddles along.
Case in point: Emerging markets. It’s no secret that emerging markets have far outperformed the
S&P 500 in recent years.
But thanks to the Fed (and their flimsy monetary policies), we’re likely to witness an even more spectacular upside run from here.
Impact on Emerging Markets
Most emerging market economies are growing at a very fast pace. They’re in the midst of booms in capital investment inflows coming from around the world. These investment flows just got a green light from the Fed to flow into emerging markets at an even faster pace.
Lower U.S. interest rates are destined to send the weak greenback even lower in value. So long as global growth continues at a solid pace, a lower dollar will support higher commodity prices.
In turn high commodity prices boost incomes, spending and investment in the developing world
- keeping emerging markets growing at a fast pace.
The Fed-easing, particularly if it continues as expected, means emerging stock markets such as
Brazil, Russia, India and China (the so-called BRICs) should continue to surge even higher.
Watch the BRICs Soar Higher as the Dollar Sinks
Sure enough, since the Fed cut rates in September, emerging market equities have completely recovered. The top emerging markets around the globe are hitting new record highs as the dollar slides even lower. This gives you an even bigger incentive to trade your U.S. stocks, bonds and other assets for better returns in emerging markets and commodities.
The BRICs offer you a great opportunity to escape the falling buck. These four nations are averaging GDP growth of 7.6% this year. Compare that to the U.S., which will be lucky to grow a pathetic 2% in 2007.
Harness the Power of the BRICs
There are many options for U.S. investors to tap into BRIC markets, from ADRs to mutual funds. But in my view, it’s best to buy all four of these fast-growing markets at the same time. Now you can tap into the power of Brazil, Russia, India and China with a single exchange traded fund... [click here to continue reading]
Mike Burnick, Director of Research, is the editor of two signature investment research services:
Global Market Investor and Market Shock Trader.
GLOBAL MARKET PERSPECTIVES
The Steadfast China Markets: How to Break Into the ONLY Market that Didn't Correct
This Past Summer...Before the Next Windfall
This past summer global stock markets got snared in a correction that clipped more than US$3 trillion off the value of stocks worldwide. But at least one high-profile market barely skipped a beat.
China's CSI 300 Index of mainland stocks traded in Shanghai and Shenzhen continued to defy gravity. This index surged past the 5000 mark in August to a new record high, up more than 150% so far in 2007!
The fact that Chinese stocks continue to attract investors' cash in the midst of the global credit crunch correction isn't really a surprise to me. After all, the mainland markets are closely controlled by Beijing. So the markets resemble a game of chance where the house makes all the rules. The government strictly regulates all investment activity, including who can play in its casino-like stock markets.
Up until recently, the domestic exchanges were largely restricted to China's mainland investors, with additional quotas granted to foreign institutional investors to participate as well. But that's all about to change. In fact, the stage is set for a major exodus of Chinese investment cash, which I see heading straight for Hong Kong.
There's no doubt in my mind that we're about to see the second coming of the great wall of Chinese money flowing into Hong Kong - only bigger and better the second time around.
Chinese Investors Just Can't Get Enough Stock Market Action!
Retail investors in China opened more than 30 million new brokerage accounts just through August of this year. That's more than six times the number of new accounts established in all of 2006. Trading by retail investors dominates share volume in Shanghai.
Individual investors account for a mind-blowing 60% of total market volume! In the U.S., individual investors only make up 5%.
Chinese authorities are understandably concerned about too much irrational exuberance from its investment-hungry citizens. Beijing is wary of potential unrest in the event of a severe market selloff, such as that just suffered by nearly every other global stock index.
As a result, the government has taken repeated steps to try and reign in the stock market speculation. But China's growing army of new investors is still plunging into the stock markets. They're opening new brokerage accounts at a rate of 200,000 every day!
Still faced with the problem of how to relieve excess speculation in Shanghai and Shenzhen, Beijing came up with quite a solution. They're going to send some of that red hot retail money flowing into Hong Kong instead!
Soon, mainland retail investors should be able to buy Hong Kong-listed shares directly through their own brokerage accounts held at the Bank of China, without going through an institutional asset manager. The pilot program, which will be rolled out gradually, should eventually include branch offices of the Bank of China in 40 major Chinese cities. This new program may also include additional banks in China.
This is a giant step towards opening China's closely controlled exchanges in Shanghai and Shenzhen. Up till now, these two mainland exchanges have been the only game in town. But now, hundreds of millions of retail investors in China - with an estimated 17 trillion yuan (US$2.3 trillion) of savings to invest - will be able to diversify offshore and use the Hong Kong Stock Exchange as their preferred portal.
Another Great Wall of Chinese Investment Cash Flows Toward Hong Kong
In May, the Chinese authorities first cracked the door open for its citizens to move money into Hong Kong. This new program involved key changes to China's Qualified Domestic Institutional Investor (QDII) program.
This allowed mainland investors to move money offshore (also narrowly defined as Hong Kong-listed stocks) through "qualified" managed accounts held with Chinese banks, brokers and insurance firms. But these accounts had restrictions that excluded some investors.
Still, these changes to QDII were enough to propel the Hang Seng China Enterprises Index (HSCEI) of Hong Kong-listed Chinese firms to new record highs. The index leapt nearly 24% during the two months following Beijing's rule change. During this period the HSCEI outperformed the Shanghai Composite Index nearly 3-to-1, as Chinese institutional investment money surged from the mainland exchanges into Hong Kong.
This time around, "More than HK$300 billion is set to flow" into Hong Kong shares as a result of Beijing's latest move, according to an article in China's business newspaper, The Standard. A report by Deutsch Bank analysts confirms my expectation that "the most obvious beneficiaries of this new policy will still be those dual-listed H-share companies that are trading at significant discounts to their A-share counterparts" listed in Shanghai.
According to another report, "...of the 43 companies whose shares trade both in Hong Kong and on China's A-share markets, the average weighted A-share premium on August 20 was 87%" - a huge trading premium over the exact same company shares listed in Hong Kong.
Closing the Valuation Gap...in Hong Kong's Favor
The reason for this two-tiered valuation of course is that only Chinese citizens, and a very small number of institutional investors from outside China, are allowed to trade the A-shares in Shanghai and Shenzhen - and NO short-selling is allowed.
As a result, mainland A-share markets have been pushed to unreasonable valuations by a frenzy of buying from China's retail investors, who up to now have had very few other investment options.
For instance, the Shanghai CSI-300 Index of A-shares trades at more than 52 times profits. Meanwhile in Hong Kong, the Hang Seng China Enterprises Index trades at just over 20 times earnings.
Nothing like a half-off sale in Hong Kong to attract hundreds of billions in fresh Chinese investment cash!
The Best Way to Profit from the Cash Moving into H-shares...
Perhaps the best pure-play available to investors is... [click here to continue reading]
Mike Burnick, Director of Research, is the editor of two signature investment research services: Global Market Investor, which focuses on worldwide ETF profit opportunities, and Market Shock Trader, which capitalizes on volatility in the markets with well-timed options.
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