U.S. Crisis Could Be an Emerging ETF Investor's Opportunity

Having spent years in Southeast Asia, I learned a thing or three about Mandarin Chinese. For instance, the word for crisis is "wei ji." Although some native speakers deny it, "wei ji" actually comes from combining the word for danger (wei xian) and the word for opportunity (ji huay).

Debate may rage on about the equation: Crisis = Danger + Opportunity. Yet there's little argument that one person's, group's or country's crisis may be another person's, group's or country's risk-worthy chance for advancement.

So the U.S. crisis up until now has included a debt bubble, residential housing collapse, systemic financial breakdown and eventual economic recession. The U.S. will still have to contend with higher-than-normal credit defaults for less worthy issuers, commercial property foreclosures and risks to the U.S. dollar.

All of those home-grown, crisis-level concerns do indeed pose dangers to any type of investment. We did see the world markets, and emerging markets, in particular, fall deeper and further into a black hole in 2008. Why? Other regions weren't ready to quote unquote "decouple" from U.S. business activity or our consumer-based society.

Yet, what about going forward? It does seem that even a modicum of stability in the world's largest economies (i.e., U.S. and Japan) spell dangerously desirable opportunities in emerging market ETFs. Emerging and frontier market success has been well documented here at ETF Expert.

Granted, I anticipated the summertime slumber in my article "Anatomy of a B--- Market Rally." Specifically, emerging markets really haven't made a whole lot of progress since early May. In fact, an argument could be made for the old adage, "Sell in May and go away."

In spite of an 8-week surge that has been followed up by a 7-week slumber, there's every reason to view emerging market ETFs with greater affection than ever before. Pullbacks in equity markets provide risk-taking opportunities, and those opportunities are most evident in the growing middle classes of China and Brazil.

Consider China's commodity binge spending as evidence for housing demand. You can profit from Claymore China Real Estate (TAO).

Think about changes taking place in Latin America's largest economy, Brazil. You can tap Brazilian consumers' increasing purchasing power with a fund that is 40% weighted towards food products, household durables and specialty retail. Take a gander at the Market Vectors Brazil Small Cap Fund (BRF).

Investing in the purchasing power of foreign consumers is not a "sure thing." It's a risky, or... "dangerous" proposition. Still, the rewards are there, particularly if the Brazilian real and the Chinese yuan appreciate against the U.S. dollar.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[Mad Hedge F...:]

Opportunity of a lifetime. Emerging markets are still the place to be, especially China, Thailand, Brazil, Mexico, Turkey, and South Africa, but don’t take your eye off the ball, because the volatility in these markets can be huge. China will continue to lead the global market recovery. Commodities are a buy, as are their producing stocks. You also want to own consumer stocks in countries where there are rising standards of living. Russia took it on the nose last year, but will get bailed out by a rising price of oil, and in any case, is economically much stronger than its last crisis in 1998. If you are going to play in this space, it is best to diversify to spread around risks. No country has a monopoly on making money. Also be patient and invest for the long term. These markets can be tough to trade. All great advice to live by. I think you need to keep the emerging market ETF (EEM) and the China ETF (FXI) permanently on your radar.

Jun 25 08:37 AM

[islandcreek:]

In the 70's, John Templeton mostly exited the U.S. markets and made a lot of money in Japan, which was the emerging market of its day.

Jun 25 11:10 AM