Is investing abroad because the U.S. is going through a rough patch a good idea? If so, why? What foreign markets are attractive? Investing abroad is a good idea -- but not because the U.S. is melting down. Instead, it turns out that emerging markets are outperforming developing ones because they are supplying the commodities that fuel demand for 10% annual growth in emerging markets like China and India.
Emerging markets are up 20% in the last year while developed markets like the U.S. are flat. The reason to invest in these markets is not so much because the U.S. is going through a rough patch but more because these other markets are doing so much better and they are going to continue to do well regardless of what happens in the U.S.
But the U.S.'s rough patch may not be as bad as people had thought. An economist at Wachovia Corp. (NYSE: WB) changed his estimate of the chances of a recession from 90% to 45%. So the U.S. may turn out to be a good place to invest if stocks are priced for a recession that doesn't happen.
The best emerging markets performers over the last three years are in Russian commodity plays like Gazprom OAO (OTC: OGZPY) (Ruble) (+75%), Norilsk Nickel Mining & Metallurgical (OTC: NILSY) (+73%), and Lukoil Holdings (OTC: LUKOY) (+51%). Other international commodities companies like Companhia Vale do Rio Doce (NYSE: RIO) (+84.2%) and Reliance Industries (commodity chemicals) of India (+84.5%) are doing well.
The reason these stocks are doing well is that demand for commodities is very strong in China and India, which are both growing at 10% a year. These countries are buying raw materials to fuel their growth.
China's market is extremely risky. It has fallen by about 33% since the beginning of the year. As I posted, there is little disclosure and many citizens in China have leveraged their houses to buy into the market based on whether the company's trading symbol – which is numeric -- contains a lucky number like an 8.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
Reader Comments (Page 1 of 1)
5-15-2008 @ 5:46PM
al coholic said...
I hate to tell you and the wise man from Wahovia but we are now entering our second quarter of recession.
Do you honestly believe the "tweaked" inflation, GDP, and unemployment government numbers? In a couple of months the "revised" numbers will miraculously appear to confirm what consumers producers, and workers already know.
Here's a laugh! The latest official figures show food lower in price and believe it or not construction labor edging up a bit. Let's see....construction workers are virtually all 1099 guys these days so those glowing unemployment figures are meaningless. As for food, I challange you to show me any evidence of lower food costs here in the real world.
5-15-2008 @ 6:58PM
Americas Watchdog said...
Hi Peter;
We have the group called Americas Watchdog & first let me say how much we appreciate all that you have done on the auction rate securities $320 billion fraud.
Wachovia telling people they think there is only a 45% chance of a recession? Did they mention that Wachovia has one of the more problematic loan portfolios in the country with a very heavy emphasis on pay option arms? We are now predicting that by this time next year 1 out of 4 US homeowners will owe more on their home than its worth.
We think the Wall Street Bull market is just that---bull. I will guess Wachovia also sees no inflation----Wall Street liked the sound of that also. It is also bull. Paulson says "he can see the light at the end of the credit crunch-----------CNBC says the same thing. What will they say when the market is at 10,000 next year? Will they do what Countrywide's CEO has been doing; "gee I never saw it coming".
5-20-2008 @ 11:29AM
Mj said...
Why are you down on the stock market??? Apparently, you are not an investor. I have faith in our system - you need to watch Kudlow to understand.