Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
A Three-Prong Approach to World Markets
02/12/2013 8:30 am EST
Global markets in 2013 virtually all fall into one of three categories, and each requires a somewhat different strategy, says Chris Versace.
What’s ahead for the global economy? My guest today is Chris Versace. Chris, thanks for joining me here.
Oh, thanks for having me, Nancy.
You’re quite welcome. So the global economy, part of it looks like it’s doing pretty well, and the emerging markets look like they’re starting to really pump up again. But then you have a lot of other problems, especially in Europe. So what do you see ahead? Is Europe going to get better, or are emerging markets going to continue to climb?
Sure. The way I kind of look at it is, I put them into three buckets. There’s the domestic market, there’s Europe, and then as you said there are the emerging markets, which is China and a bunch of other markets.
If we look over the last several months, whether it’s market economics data, HSBC data, or some others, we’ve seen a real return to expansion in the emerging markets, particularly China but also Brazil, India, Indonesia, and the like. So I’m looking for companies that have good exposure there to fuel incremental growth.
In Europe, the data is improving, but we’re still in that contraction mode, where a lot of the indicators are below that magical line of 50. You know above 50 is expansion, below 50 is contraction.
In the US, well, in the fourth quarter of 2012 we actually saw a negative print on GDP, so I think that’s a little concerning for some. I still think on the domestic front we’ll have tepid growth in 2013. To me that’s about 2%, maybe a little higher, maybe a little lower.
So when I put all that together in my crystal ball, we want good, solid companies that have growing exposure outside the United States in the emerging markets. To me, that’s companies like International Flavors and Fragrances (IFF), or Starbucks (SBUX) for example, or even some others we’re seeing pickup in demand.
We look here at home: rebounding housing, rebounding auto, rebounding industrial economies in the emerging markets, and that’s going to drive incremental copper demand. To me, that says it’s good for Freeport McMoRan (FCX).
So you would stay then with the multinationals versus going out into those foreign markets?
Oh I would absolutely stay with US-based companies for several reasons. One, you know what you’re going to get for the most part.
Right...you sort of know your risk.
Well, you know your risk, but you also have the beauty of an accounting system that you’re going to know, you have regular filings with the SEC that anybody can access over at SEC.gov. So there are a lot of reasons to I think stay with that, rather than invest in Chinese stocks on the China exchange where you don’t know them.
Well, what about ETFs, like investing in a basket of Chinese stocks?
Well, ETFs are another great way to play it. I’m glad you brought that up Nancy. In my service, ETF PowerTrader, we’ve been doing that in a couple different ways. We’ve been using FXI to play China, we’ve been using EEM to invest in other emerging markets. And because ETF PowerTrader is a trading service, we can also layer in out-of-the-money call options to really supersize our returns, and we’ve done a very good job with that.
But you wouldn’t advocate necessarily somebody go to some esoteric ETF that invests in these crazy little companies in Malaysia?
No, no, you have to maintain some of the discipline with stocks, right? You want to see what the underlying holdings are. Are they quality companies that you recognize? What’s the volume traded? Because the last thing you want with an ETF or a stock is what we call a roach motel—you can get in but you can’t get out.
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