Martin here with a global market update:
While the U.S. stock market continues a 6-month-long struggle to poke its head above water, most overseas stocks are sailing into new-high territory.
As you can see from this chart, just this past Friday, the MSCI All-Country World Index surged to its highest levels in history, blowing away fears of regional conflicts … ignoring the global pile-up of debts … and leaving stock skeptics scratching their heads.
Why? Analysts are having a tough time finding one single theme or phenomenon to help explain it.
Countries that have been leading the rising tide of stock prices — like China and Japan — continue to do so.
Countries that were sunk last year by a panicky outflow of investors — like Brazil and Russia — are now rebounding.
Even Europe, which was declared virtually dead, is now managing to float higher.
The big question:
Is this new wave of rising equities being driven strictly by the flood of money central banks are pumping into their economies? Or are there other hidden propellers that most analysts have missed?
Here’s the key:
In the United States and the European Union, central banks have printed money mostly out of thin air. It’s quintessential funny money — an addictive drug that, when ultimately withdrawn, could leave a series of painful hangovers.
But in key emerging markets — especially China — the central banks are drawing the liquid funds from a rich treasure chest of reserves. And this, in turn, is helping to create a burgeoning new middle class that’s driving more cars, crowding into more shopping malls, using more mobile devices, buying more homes.
That’s what I’ve personally witnessed in Brazil.
|Martin arriving in Goiás, Brazil at age six.|
My first trip to Rio de Janeiro was in 1952. I lived in the central state of Goiás and the southern industrial state of São Paulo. I’ve crisscrossed the country from the extreme southern border town of Chuí to the remote northern forests of the Amazon. Some of my most memorable trips have been in recent years, including last month.
And from all of this, I can tell you flatly:
Brazil’s economy and society, no matter how troubled they may appear to the outside observer, are just beginning to enjoy a golden era of growth.
Despite almost unanimous complaints about corruption …
despite protests on the streets to impeach the president …
despite last year’s plunge in Brazil’s stocks and currency …
The malls are still packed with shoppers.
The highways are still jammed with leisure travelers.
And millions of once-impoverished families are still reaping the benefits of middle-class citizenship.
That’s also what I’ve seen, first hand, in China.
|School in New York’s Chinatown where Martin began to learn Chinese with first and second graders.|
Here, my personal journey began in 1967 — with overseas Chinese communities. It has continued in recent years in the northern, southern, and western regions of Mainland China. And again, I can say without hesitation:
Whether you love it or fear it, hate it or embrace it, China is well on its way to fulfilling its multi-millennial dream to restore supremacy as the world’s central kingdom.
Military supremacy? No. Global conquest by armed forces has never been a staple of China’s history — and hopefully will never be a theme of its future.
But economic supremacy is another matter entirely. As Larry Edelson wrote last Wednesday (see “Asia Still Rising“) …
“In terms of Purchasing Power Parity (PPP), China is already the largest economy in the world. In terms of regularly calculated GDP, China’s economy will be the largest in the world in less than 10 years.
“And that estimate doesn’t even take into consideration China’s new Silk Road, which will turbocharge economic growth — not only in rural western China, but throughout all of Asia as well.
“[That’s why] China’s President Xi Jinping is in Pakistan signing a $46 billion China-Pakistan Economic Corridor (CPEC) — a 1,865 mile network of roads, railways and pipelines between the two countries.”
Referring to Asia’s 4 billion people, three-fifths of the world population, Larry describes it as a powerful force, whereby …
* domestic consumption is about to outpace the region’s reliance on export economic growth …
* overall growth is about to enter a new, even stronger phase …
* the epicenter of the boom, China, has nearly 4 TRILLION DOLLARS in reserve to deploy to help the country — and the region — grow even more. And …
* 57 countries from all over the world are joining the new Asian Infrastructure Investment Bank (AIIB).
The chart below on China’s economy (from The Economist) says it all.
It shows that consumption (including government consumption) plus investment are now the biggest drivers of new growth in the Middle Kingdom.
It also shows that export growth has now taken a back seat. And it proves, unambiguously the argument that Larry and our team have been making about the importance of this transformation for China and most of Asia.
Nor is this consumption trend reaching some mature, end-of-the road phase. Quite to the contrary, relative to the rest of the world, it’s still in its infancy. In fact, private consumption (in this case, excluding government spending) currently represents only 36% of China’s GDP. In the rest of the world, the average is close to 60%.
“I Like to Fund Something
That Is Hated.” — Jim Rogers
Yes, the stock markets of Brazil, China and other emerging markets are subject to sharp declines.
Yes, all have been victims of capital flight from time to time.
Yes, all suffer from periodic whirlwinds of bad press globally or popular protest domestically.
But for investors like Jim Rogers — as well as analysts on our team — that’s also the time to seriously consider buying.
Look back in history and you’ll see what I mean.
For example, if you were buying Chinese stocks on June 4th of 1989, both the world’s leading Pollyannas and the market’s most astute contrarians would have seriously considered escorting you to the nearest padded cell.
That was the fateful day when Chinese troops, crouched in tanks and armed with assault rifles, inflicted yet-uncounted casualties on unarmed civilian protesters in Beijing’s Tiananmen Square.
Yet it was also the day — right in the midst of that Rim-of-Fire melee — that China’s leading stocks were near the best buys of that era.
And it was only a tiny handful of “reckless” investors who turned a blind eye to the blood on the streets, who loaded up with the country’s “Red Chips,” and who went on to make some of the biggest fortunes of the last quarter century.
That’s the kind of situation, although not nearly as extreme, which we may be starting to see in some BRIC countries this year — Brazil, Russia, India, and China. But …
Compared to the Dark Days of Tiananmen,
The Political Risks Today Are Smaller.
In Brazil and China today, true, there are troubles and conflicts — some acute, some chronic. But unlike what we’ve told you about in our articles on the Middle East, North Africa, or Ukraine …
We see no major financial failures, no coup d’états, and no wars in Brazil or China — either in the rearview mirror or on the visible horizon.
Public order and a certain rule of law, however corrupt and inefficient, still prevail.
Consumption, not destruction, is the dominant theme.
That’s our combined experience from the ground up and the Big Picture from 30,000 feet. Now, let’s return to …
What’s Happening for
BRIC Investors Right Now …
First, the domestic currencies of most BRIC countries, which suffered in 2014, have now turned higher in 2015.
I’m not saying this because I think you should start investing in foreign currencies. Rather, my point is that the strength of a country’s money is one of the best early signs of its prospects overall. Along with domestic stock prices, it can give you the first heads up of a possible major change in trend.
Some highlights …
The Brazilian real hit a low last month and has been climbing gradually ever since. It’s still far too soon to call a major bottom. But the meager fact that it’s not continuing its recent tailspin is being greeted with relief by overseas investors with big stakes in Brazil’s assets.
The Chinese yuan has been — and continues to be — the strongest of the BRIC currencies. Its prior decline last year was relatively shallow; its recent surge, relatively steep. With the world’s biggest stash of cold cash behind it, this should come as no surprise.
Even the Russian ruble, the world’s most beaten down — and beaten up — major currency of 2014, is now, not-so-ironically, the world’s biggest winner so far in 2015.
Whether the ruble’s recent surge will continue or not remains to be seen.
But at this juncture, all it seems to take is for Russia’s twin economic threats — the 2014 oil-market disaster and the West’s foreign sanctions — to be gradually replaced as the dominant factors. The word “better” need not even enter analysts’ lexicon.
Second, this year’s recoveries in each country’s stock markets are following a similar trajectory.
EWZ, the exchange-traded-fund that best represents Brazil’s bluechips, is up 28% since its recent low on March 13.
FXI, the premier China ETF for U.S. investors, is up 28% since it touched an intermediate low on March 10. And …
RSX, the leading ETF for those willing to risk Russia’s market, has skyrocketed 42% since its recent low.
These numbers speak louder than economic jargon or technical gobbledygook.
Regardless of what we think, hope or fear, the simple fact is that these markets are going up.
At the very minimum, we must not ignore it. And for any investor willing to assume some risk, it’s time to stand up, pay attention and consider how to start profiting prudently.
Good luck and God bless!