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Brad Jensen is senior portfolio manager at Accuvest Global Advisors in Walnut Creek, Calif. He also manages portfolios for a sister company, William Wright & Associates. In total, the two advisory firms manage more than $1 billion in assets mainly for high net worth and institutional investors overseas.

IndexUniverse.com's Murray Coleman caught up with Jensen to get his take on the global economic situation. The 24-year veteran portfolio manager focuses on international markets and currencies. Jensen uses exchange-traded funds to implement a majority of his stock allocation strategies.

IU: Where is developed Europe in the economic cycle right now?

Jensen: They're a little bit behind the U.S. But an eventual European recovery, in our opinion, will be more robust. However, there's still a lot of uncertainty in the market. For that reason, the U.S. has to be the one to lead the rest of the world out of this global recession.

IU: Do you see signs of that happening?

Jensen: We do see leading indicators stabilizing in the U.S. We're seeing modest thawing in credit markets. And the ISM Manufacturing index is showing that purchasing managers are picking up their activity. That has proven in the past to be a leading indicator—rather than a lagging indicator. But nobody is saying there has been a massive improvement. Again, we're just seeing very recently some form of stability in global markets.

IU: What other positive signs are you seeing?

Jensen: Another positive indicator to us is strong demand for copper. That's significant since copper is an important raw material used in manufacturing and other infrastructure-type of products. China has become such a large user of raw materials, so the rise in copper prices indicates that demand in Asia is improving. Copper prices aren't up to the levels we saw last spring, but they have showed renewed strength. We think that's big.

IU: How are you weighting global portfolios in terms of U.S. as compared to other developed markets?

Jensen: In terms of equity weightings, our U.S. allocation is around 40%. That's about six points underweight relative to the MSCI All-Country World index. In our core global portfolios, we've got another 30% devoted to Europe. That's an overweight position compared to the ACWI, which has about 25% in Europe. So even though it's a smaller allocation versus the U.S., we're still more bullish on Europe over the longer term.

IU: How do you view Japan?

Jensen: The ACWI weighting is 10.5% and we're at 8.5% right now. We're making a call on Japan in a negative sense. The fundamental data as it relates to Japan is very weak. In fact, it's the lowest-ranked country in our review of 30 major global markets. That causes us to be underweight in our core portfolios. The U.S. and Japan have been underweight in our models for several years now.

IU: What's your take on emerging markets in general?

Jensen: We've been underweight those markets for awhile. Emerging markets have just been ravaged during this credit crisis, from September 2008 through today. But it has been impacted to different degrees. In general, though, these markets have been ripped. As a whole, emerging markets were down about 65% in November 2008 from its October 2007 highs. But our view is that it's an important part of the world and we dominate in exposure in our core portfolios. That said, we are totally naked in our core portfolios of some countries such as Chile, China, India, Russia, Taiwan, Turkey and Malaysia.

IU: Why are you bearish on three of the BRICs?

Jensen: The market's breakdown has hit Russia, India and China especially hard. We see all three countries as very risky at this point. The one thing that tends to go up in a down market is correlation. Avoiding risk is the one theme that has driven all asset classes throughout the world.

When we see a return to risk-taking, even at marginal levels, those tight correlations will start to at least show some interruption. At that point, the market will have more appetite for risk. That's when we'll become more interested in the BRICs, specifically, and emerging markets in a more general sense.

IU: What emerging markets are you more bullish about?

Jensen: South Africa is the third-highest-ranked country in terms of our risk exposure. We use the iShares MSCI South Africa Index (NYSE: EZA) to provide exposure to that market. We evaluate South Africa, like all other countries, based on several factors.

One is that we take a close look at exchange-rate overvaluation and undervaluation levels. Another important factor we monitor is the level of political risks involved in a particular country and market. And we also look at concentration of stocks in ETFs.

Besides risk, South Africa also scores highly in terms of fundamental factors. Those include: earnings growth (both short and long term); returns on equity and a myriad of different slicing and dicing of earnings-share data. Interestingly enough, South Africa is only average in terms of valuations.

IU: Are there any others?

Jensen: Although they're fairly small weightings, we're overweight Brazil and Korea. The common factor driving those two countries in our mind is an undervaluation of their currencies. I understand someone could argue that both economies are weak right now and their currencies are overvalued. But we think that they're actually undervalued, based on a number of factors we review. In general, we look at a basket of goods and how much they'd cost if purchased in the home country. Then we compare that to current market rates those currencies are bringing on world exchanges.

It's important to keep in mind that undervalued currencies in an export-heavy economy can increase GDP growth in that country significantly. That's why we think all three countries—South Africa, Brazil and Korea—have competitive trade advantages that will drive growth as world economies recover.

Source: The Best Emerging Markets Today - Brad Jensen