Today's comment is by Mike Burnick, our Senior Editor, Global Markets Analyst and Editor of the new signature investment research service that focuses on worldwide ETF profit opportunities: Global Market Investor.
Dear A-Letter Reader,
While I was away last week in Panama, meeting and speaking with many Sovereign Society members at our annual Total Wealth Symposium, global financial markets continued to soar higher, as if on auto-pilot.
I really enjoyed my stay in Panama. I had the chance to meet and greet so many of our members in person, and it was a big thrill for me to introduce them to my new ETF-focused service, Global Market Investor.
It's also great fun spending time with all of our other terrific speakers at the symposium and hearing their views on financial markets.
Our Sovereign Society Council of Experts is a pretty diverse bunch - hailing from all over the world - and specializing in everything from stocks, bonds and currencies, to offshore annuities and private banking.
The Big Bull Run in Global Markets Is on Everyone's Mind
In my conversations with many of the investment experts in Panama, a recurring theme kept cropping up: the amazing, nonstop surge in global stock markets.
Of course, stocks have been moving higher pretty much in a straight line since the sharp, but very short global correction nicked share prices back in March.
At the very same time I was in Panama, many of the global markets I was discussing and recommending were literally running away from me. In fact, a large number of markets in Europe, Asia and the Americas notched fresh all-time highs last week.
The Dow Jones Industrial Average stayed in its upside sprint above 13,000 - notwithstanding the sharp slowdown in U.S. economic growth.
Even the much maligned S&P 500 Index of blue-chip American stocks has now closed to within spitting distance of its old closing high, just above 1527. That's a level not seen in more than seven-years, just before the tech bubble imploded in 2000.
Gains in Many Overseas Markets are Justified More so Than in U.S.
The soaring S&P gains are all the more amazing when you consider the ominous signs of a slowing economy and much weaker earnings growth ahead in the United States.
But the index is being drawn to this magical record level - like a moth to an open flame - and investors should tread very cautiously lest they get burned.
I'm still expecting to see some kind of pullback in share prices soon, and it may happen shortly after a new high is in the record books. At that point, investors take time to look around and wonder "why so high?"
It's much easier to see and understand the reasons why international stock markets are moving higher.
In the Asia ex-Japan region for instance, economies are expanding at a rate of about 8% - compared with GDP growth in the U.S. of just 1.3% in the most recent quarter.
Furthermore, companies in the Asia-Pacific region should continue to post double-digit profit growth rates - while S&P 500 earnings growth slows dramatically to mid-single digit rates this year.
Contrast the U.S. profit picture with that in mainland China, where first-quarter earnings are soaring about 80% according to recent first quarter reports.
Is a Correction in the Cards for China?
China's mainland stock markets where among the very few in the region that DID NOT surge to new highs last week - that's because they were closed for the Golden Week holiday.
But markets were back to business as usual in Shanghai yesterday, posting yet another record. Bloomberg reported that nearly 1.5 million new retail brokerage accounts were opened in China during the week ending April 27, just before the week-long holiday briefly cooled speculative money flow. And these overvalued and overheated markets, which have already gained over 40% year to date, will probably surge higher still.
But believe it or not - even amid all this upside price action - you can still find a few bargains - isolated but attractive pockets of valuation in global stock markets. Just don't look in mainland China - at least not at the moment.
China's mainland markets, although possessing terrific long-term potential, are currently off limits to my Global Market Investor portfolio, due to the extreme speculation, not to mention sky-high valuations.
Even Hong Kong shares - although much cheaper than mainland stocks - are no longer the bargains they were just a short time ago.
Valuation Getting Stretched in China - But other Opportunities Abound
The strong economic and profit growth numbers coming out of China certainly look good, but perhaps a little too good!
I can't help but believe that the authorities in China would like to cool things down a bit, and try to reign in the excessive speculation that's occurring.
In fact, I recently read that Chinese authorities have raised initial deposit requirements for establishing new brokerage accounts for the 10th time to 50,000 Renminbi. That's nearly equivalent to the average annual salary in fast-growing Guangzhou province. Yet stock speculation continues.
This presents the potential for some sort of accident in the near-term that could trigger a major correction in Chinese stocks prices.
I'm waiting for a bit of a correction and consolidation in Shanghai shares before I would consider jumping in again.
Still, there are several markets in this region, which I discussed at length during my presentations in Panama, which still appear poised for big gains.
I'm talking about markets that offer you a much better bargain for your money from a valuation perspective than China, but are still growing rich from China's expansion.
In fact, there are several economies in China's neighborhood, which are doing big business in Beijing, and throughout the fast-growing Asian region.
By focusing on these few select markets, you still get to participate in the exceptional profit potential being generated by the China boom. But you can invest in an indirect way, which helps you significantly reduce your investment risk while still participating in more upside gains.
MIKE BURNICK, Senior Editor & Global Markets Analyst
P.S. Sovereign Society members who made the trip with us to Panama got first dibs on my favorite emerging profit trends in global markets. They got to hear my analysis firsthand about markets that still offer exceptional upside potential. But even if you couldn't make the trip - it's not too late for you to tap into these exceptional profit opportunities too! To get the full scoop about these select global ETF recommendations, give my new service, Global Market Investor a test drive - subscribe now risk-free. Try your hand at global investing made easy - with exchange traded funds. If you find it's not for you within the next 60 days, just let us know and you'll receive a full refund. No questions asked.
