Martin here with an update on global markets. So far this year, while U.S. stocks have flat-lined …
Mumbai has surged …
Hong Kong and Shanghai have gone through the roof, and …
Despite all its troubles, Moscow has rocketed like a Topol-M intercontinental ballistic missile.
They’re what I call “blast-off markets.” And they’re proving how quickly things can change.
Late last year, for example, if some analyst told you to buy China or India, you’d say he’s nuts.
And if someone tried to pitch Russia, you’d throw him out on his rear end.
The overseas news was so outrageously shocking, it would have felt like volunteering for duty in Dante’s inferno.
But now, suddenly, the small handful of investors who risked those hellish fires are making money hand over fist.
Or look back a half century, and you’ll see an even more radical kind of change.
I know. Because I was there. In 1958, my father’s office was on Broad Street, next door to the New York Stock Exchange. That’s where I used to spend my days off from school, helping him dig through company reports or plot his stock charts.
And even before I was born, emerging markets were his favorite place to explore — for both lifestyle and investments.
But if you think investing in emerging markets is risky now, imagine back then! It wasn’t just risky. It was virtually impossible — even for sophisticated investors.
Yet, strange as it may seem to most people today, that’s precisely what my family did — starting in pre-Castro Cuba, Costa Rica and Brazil.
We were virtually the only ones — and the reason was obvious.
To properly invest in those countries, we had to travel there in person, exchange our dollars into local currency, set down roots, open up local accounts, and only then start thinking about buying something.
Agricultural land and enterprises were at the top of my parents’ list.
If that meant my mother had to get her feet muddy and try plowing the soil with a couple of oxen, that was all part of the due diligence.
Today, you don’t have to leave your home. You don’t need a phone or even a computer. All you have to do is whip out your iPad, open your online brokerage app, press a couple of buttons, and …
Presto! You can instantly own the most widely traded, highest quality companies in the biggest blast-off markets of the world.
Don’t get me wrong. I’m not telling you to do that today. Rather, my task today is strictly to provide some facts, disclose the risks, and give us — both you and me — some more time to think about it.
From the beginning of the year through the closing prices this past Friday, the ETF that tracks the S&P 500 (SPY) is up 2.4%. Not much.
Meanwhile, though …
INDY, the main India ETF, is up 8.4% — over three times more …
FXI, the big-cap China ETF, is up 23.4% — nearly ten times more, and …
RSX, the primary Russia ETF is up 40% — a shocking 17 times more!
Many investors won’t touch these markets with a ten-foot-pole, essentially for two reasons.
The first reason is risk and angst.
|Climbing Great Wall, 2000|
China, they say, is slowing down and vulnerable to a housing bust. I’ve been all over China. So I know what they’re talking about.
But I’ve also seen a side of China, especially in the dynamics of its population, that tell a very different story.
|Martin in São Paulo, 1961|
Brazil, they point out, is mired in a massive corruption scandal that has practically sunk its biggest oil conglomerate and gutted its political leadership. And they’re not wrong about that either. I first went to Brazil when I was six and was also there last month. I’ve seen the mess the country is in, first hand. But I’ve also seen the amazing potential that Brazil still has.
|In St. Petersburg, 2008|
Russia, as everyone knows, is wallowing in the cesspool of a broken currency, a broken economy and more widespread corruption than Brazil or China combined. I mostly agree. I’ve traveled to Russia’s biggest cities and its smallest villages.
But I’ve also seen another side of Russia, which I’ll tell you more about another day.
The $64,000 question: Is all the bad news mostly old news that’s already reflected in their stock values, already battered severely last year? Or are there entirely new, hidden dangers still to be revealed?
The second reason investors shy away is resentment and anger.
China, they argue, is attacking us in cyber space and conquering disputed areas in the South China Sea.
Russia is effectively waging war against the West — with support for rebels in Ukraine, with embargos, and with the harshest anti-American rhetoric since the Cold War.
How can we turn a blind eye and effectively reward them for their bad behavior?
Good question. Suffice it to say that you have two choices:
You can base your investment decisions mostly on philosophy and politics. Or …
You can base them mostly on where you can find the best return with relative safety.
Either path can be justified. Both have risks. But I feel you do have to make a choice. You can’t invest for profits one day and for ethics the next day. You can’t combine these two fundamentally different approaches in one magical brew.
My recommendation: Follow the path that’s the most likely to succeed. Use the strategy that can do the best job of building your retirement nest egg with safety. And then, if you have some money left over, you will always have the freedom to support the cause that can make a difference.
That’s what I’m doing. And in the weeks ahead, I’ll give you more details about precisely where and how.
Good luck and God bless!