In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
Today’s Top Trades in Global Markets
10/17/2011 3:30 pm EST
An important change in leadership is taking place in Asia whereby China is no longer the most compelling growth story. John Thomas explains, identifying 3 ETFs and currency plays that allow traders and investors to capitalize on today’s key global market trends.
Today we’re talking about trading foreign markets with John Thomas, and John, you have a lot of experience in Asia as an analyst and also as an investor, so give us your perspective on that market.
Well, China, obviously, has been the great place for the last 30 years, it will continue for a few more, but the big economic growth driver in Asia is shifting from China to India.
The reason is that China has pretty much built out their infrastructure; India is only just getting started.
India is much cheaper. Their per-capita standard of living is half of what China’s is, so I would go with Indian ETFs from here on.
China is becoming a different story. They are emerging into a consumer society, so that changes the mix of investments you want to be making in China from infrastructure related to consumer-spending related.
So, those are the big trends in China and India and the rest of Asia, for that matter, and those will continue for another decade.
Were there any particular ETFs that you believe have some good long-term potential?
Well, Hong Kong dollars, the Hong Kong ETF is a good one [iShares MSCI Hong Kong Index Fund (EWH)]. The Indian ETF, which is the Powershares India Portfolio (PIN), is a good one, and Vietnam, the Market Vectors Vietnam ETF (VNM).
Vietnam is where China is doing their offshoring because the wages in China are rising. The ones in Vietnam are only 25% of what Chinese wages are, so that is a long-term opportunity also.
Now, how about Europe? Obviously, that’s gotten a whole lot of attention in recent months. What’s your perspective on that region?
Well, obviously the trade of the year there was with regard to short the European banks, but they’re down 80% now. I would steer clear of Europe for the time being until their sovereign debt problem is solved; until we get more transparency from the banks.
What the European crisis is doing though is taking great world-class companies like BMW (BAMXF), like Daimler AG (DDAIY), and just absolutely beating them up. So, it will be an opportunity to buy the highest-quality German blue chips once the dust settles, but that time is not yet.
And what signals should an investor look for to know that the time might be right to make a buy in some of these?
In the case of Europe, it will be easy because there will be an announcement: “We have settled this. We have created these bonds to float throughout Europe to refinance the bad debts of the weaker countries.” That will be your all-clear signal, but you could be having a long wait for that one.
How about on the currency front? Any trades in that regard?
Well, you want to short the euro; short the daylights out of the euro while this crisis is outstanding.
We’ve been shorting euro since 1.45; it got all the way down to 1.34 (at time of interview). If they don’t clear this up in the next year, you could see one to one against the dollar, which implies another 25% depreciation of the euro against the US dollar.
John, do you own any of these ETFs you mentioned?
I don’t own them personally, but I do manage family assets that have positions in India and China.
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