No Place to Hide?

01/24/2008 12:00 am EST


Nicholas Vardy

ETF Strategist, Oxford Club

Nicholas Vardy, editor of Global Guru and Global Bull Market Alert, says there are opportunities even in treacherous markets like this one-if you know where to look.

So far, 2008 has been the worst start for global markets in recent financial history. As I scanned the stock markets' page of The Economist last week, a single stock market in the world ended the week in the black: Taiwan, itself off more than 25% from its November peak. With most indexes around the world now more than 20% below their recent highs, signs are that this is not just a correction but the start of a bear market.

Just since the start of the year, Japan's Nikkei index declined almost 22% while Hong Kong's blue-chip index [fell] almost 27%. China's Shanghai index [was] down nearly 34% from its all-time closing high on October 16th.

Markets are driven by either fear or greed. The greed of the last two years has rapidly transformed into fear-even panic-during the past few weeks. Although opposites, fear and greed have one thing in common: they are both equally irrational. What's worse is that there seems to be no place to hide. If there is one word for current market conditions, it is "treacherous."

So, what's the "smart money" doing? My conversations with top London hedge fund managers confirm that the world's top investors are not quite willing to throw the baby out with the bath water. Yes, they are pulling in their horns and diversifying out of stocks. But they are spending most of their time scouring neglected and fringe markets for signs of hidden value. Agriculture is a big favorite.

No matter how bad things seem, there are always ways to make money in the markets. With market pessimism at heights not seen in years, some stock markets are as cheap as they've been since the 1980s. And the bark of the "R word" (recession) is worse than its bite. [Out of] nine US recessions (zero to negative growth) since World War II, the stock market actually soared in four of them: 40% in 1954, 22% in 1961, 30% in 1980, and 30% in 1991.

So what does all this mean for your portfolio?

Barrick Gold (NYSE: ABX) was upgraded to Outperform from Neutral by investment bank Credit Suisse this week, as it raised its price target from $43 to $59. The investment firm also forecasts that gold will breach the $1,000 mark by 2009 and hit $1,145 an ounce by 2012. This "safe haven" stock [has] held up better than any of our other picks in the recent turmoil. (It closed Wednesday above $48--Editor.) It remains a Buy.

iShares MSCI Brazil Index ETF (NYSEArca: EWZ) held up remarkably well in the recent global turmoil, closing 4.45% higher on US rate-cut euphoria Tuesday. Brazilian oil giant Petrobras announced a potentially important natural gas find off of the southern coast of Brazil, and its shares shot up 9.8%. Global turbulence notwithstanding, Brazil is a Buy. (It closed above $69 Wednesday-Editor.

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