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Get Ready for Big Gains Outside the U.S.

By Larsen Kusick, analyst, Phase 1 Investor
Monday, February 6, 2012

Back in October, as the S&P 500 was hitting new lows, I told you to draw up a "shopping list"... and get ready to make triple-digit gains.
 
You see, at the time, markets all over the world were stuck in stupendous downtrends. Brazil's Bovespa, China's Hang Seng, and India's Sensex were all more than 25% below their highs.
 
But eventually, I explained, busts like that turn back into booms...
 
Be patient. Every new bull market [in emerging economies] produces dozens or even hundreds of triple-digit gains for investors. The next one simply hasn't started yet.
 
Today... I think "the next one" is here...
 
"Emerging markets" are countries whose economies are still catching up to the U.S. and Europe. That means there's still a lot of growth ahead for even basic businesses like telecommunications, construction, and transportation.
 
Even so, they suffered a brutal year last year. Chinese stocks were the best-performing major emerging market in 2011... with a 19% loss. The worst was India. Indian funds such as IFN fell more than 45% during 2011.
 
Two months ago, when India released its economic data, the headline read, "India's economy slows to weakest pace in more than two years." In December, India's index of industrial production – a key economic number that measures output from multiple sectors – turned negative for the first time since June 2009.
 
The numbers sound bad... until you realize India's economy is still growing at a 7% annual rate.
 
The same goes for emerging markets like China and Brazil. Both economies slowed during 2011. But both are still growing faster than developed areas like the U.S. and Europe. China's economy grew by about 9% last year. Brazil's growth was above 3%.
 
And now, the governments of these nations are starting to boost their slowing economies. Brazil began lowering interest rates almost six months ago. In December, the Brazilian government unveiled a set of tax cuts aimed at boosting demand for everything from food to appliances.
 
Less than two weeks ago, the Reserve Bank of India lowered reserve requirements for Indian banks, which will free more money to flow into the economy. If the economy doesn't pick up, I expect interest-rate cuts in India as well.
 
These are the same "loose money" policies that have goosed U.S. asset prices. And they're having the same effect abroad...
 
In January, India's manufacturing sector grew at its fastest rate since the first half of 2011. Similarly, Brazil's December industrial production rose the most in seven months. And as you can see from the chart below, emerging market stocks are starting to recover. 
 
Emerging Market Funds are Starting to Recover
 
Keep in mind... there's still plenty of pessimism about emerging markets. Just last week, Reuters ran a story titled "Worst yet to come for China growth." But the uptrend is in place.
 
Back in October, I shared a handful of dominant emerging market companies. This list featured many elite "trophy" stocks of the emerging market group. I told you, "The safer bet is to watch these high-quality companies and wait for the uptrend to start. There will be plenty of upside left... and much less risk."
 
Those stocks are up an average 22% in four months. And their home markets are moving back into boom mode. There's plenty of room to run.
 
Good investing,
 
Larsen




Further Reading:

In October, Larsen compiled a shopping list of "trophy" emerging market companies. Now that emerging markets are resuming an uptrend, these companies can provide plenty of upside... with minimal risk.
 
"You want to catch at least one emerging markets mega-bull market in your lifetime," Steve tells DailyWealth. "If you just buy an emerging markets fund, a bull market is usually good for a few times your money..." Since his write-up, the two funds on his watch list are up 20%-plus. Read more here: Emerging Markets Typically Soar From Current Levels.

In The Daily Crux
Market Notes
A new tech boom is forming... tech-heavy Nasdaq Composite index touches its highest level in 11 years.
 
Silver is the best-performing asset so far in 2012, up 21%... Platinum is in second place, with a 16% gain.
 
Small banks are recovering... regional bank fund KRE touches a nine-month high.
 
Big homebuilder fund KHB breaks out to a 52-week high... up more than 30% since November.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1344.90 +1.5% +2.9%
Oil (USO) 37.59 +1.2% -1.3%
Gold (GLD) 167.64 -2.0% +26.8%
Silver (SLV) 32.69 -2.0% +15.6%
U.S. Dollar 78.97 0.0% +2.4%
Euro 1.31 0.0% -3.6%
Volatility (^VIX) 17.10 -4.9% +2.5%
Gold Stocks (^HUI) 541.44 -1.8% +1.9%
10-Year Yield 1.95 +6.6% -44.9%

World ETFs
Symbol Price
Change
52-Wk
S. Africa (EZA) 70.21 +2.0% +8.4%
USA (SPY) 134.54 +1.4% +5.0%
China (FXI) 40.49 +1.4% -3.3%
Singapore (EWS) 12.73 +1.5% -3.9%
Lat.America (ILF) 48.41 +1.3% -4.2%
S. Korea (EWY) 59.03 +1.0% -5.2%
Canada (EWC) 28.78 +1.1% -8.8%
Israel (ISL) 13.73 +0.7% -10.8%
Japan (EWJ) 9.67 +0.3% -13.0%
Taiwan (EWT) 13.25 +1.9% -13.3%
India (IFN) 23.35 +2.3% -20.1%
Russia (TRF) 16.32 +1.8% -34.9%

Sector ETFs
Symbol Price
Change
52-Wk
Retail (PMR) 23.76 +1.3% +23.2%
Big Pharma (PPH) 73.61 +0.6% +16.0%
Health Care (IYH) 75.25 +0.4% +14.5%
Utilities (XLU) 34.83 +0.3% +13.4%
Consumer Svcs (IYC) 76.50 +1.5% +11.8%
Real Estate (IYR) 62.02 +1.4% +10.4%
Big Tech (QQQQ) 62.05 +1.4% +9.8%
Biotech (PBE) 22.86 +0.9% +7.4%
Transportation (IYT) 95.82 +1.1% +6.8%
Industrials (IYJ) 70.50 +1.9% +3.6%
Construction (PKB) 13.92 +2.7% +2.6%
Media (PBS) 14.41 +1.9% +0.1%
Software (PSJ) 25.81 +2.3% -0.3%
Insurance (PIC) 16.32 +2.0% -0.3%
Defense (PPA) 19.83 +1.6% -0.5%
Water (PHO) 19.17 +2.8% -0.5%
Telecom (IYZ) 21.98 +1.6% -3.0%
Internet (HHH) 70.21 +0.1% -3.6%
Basic Mat (IYM) 73.61 +1.7% -5.1%
Financials (IYF) 54.99 +2.4% -6.2%
Semis (PSI) 16.03 +2.0% -8.2%
Oil Service (OIH) 121.00 +2.4% -10.7%
Nanotech (PXN) 6.83 +2.1% -32.1%
Alt. Energy (PBW) 6.14 +3.0% -42.4%

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