Long-time radio show listeners and readers know that I favor Asia in the emerging market space. In fact, my key recommendation to Fox Business News watchers on 7/15/09 was to consider shares of SPDR S&P Emerging Asia Pacific (NYSEARCA:GMF).
The shares had been up as much as 15.6%; however, the sharp 2 days of selling in China has placed gains at a more modest 7.3% from mid-July.
Emerging Asia (GMF) is still an important consideration for your “Buy List.” Here are a handful of reasons why:
1. Truly stimulating stimulus. Around the world, central banks lowered interest rates. Governments endeavored to increase access to credit for the credit-worthy. And authorities poured hundreds of billions into domestic economic projects.
Yet economy-boosting efforts have been more successful in Asia than anywhere else in the world. 75% of China’s spending package went directly to infrastructure, creating a worldwide resurrection for materials and natural resources. Singapore, Malaysia, South Korea and Taiwan all spent copiously on their households… people who aren’t burdened with the same level of debt as Americans. Similarly, banks throughout Asia aren’t hobbled the way that their U.S. counterparts are, making it possible to lend extensively.
2. Spending the cash in pocket. “Wealthier” countries find themselves dealing with astronomical debt that will require a greater tax burden on its citizens. In fact, Americans are “flat out” afraid to spend money as they contemplate future taxation for health care and extreme employment uncertainty.
In contrast, emerging Asian citizens are finding themselves with more cash in their pockets than before the global credit crisis. In China, home sales and passenger cars have jumped 70% year-over-year. 70%!
3. Same loose monetary policy, much stronger economies. U.S./European economies are projected to grow at 2%-3%… if all goes well. Some estimates peg Asian tigers growing their collective GDP at 7%-8% or, 3x the rate of the westernized world.
Knowing that the economies in Asia will be growing at a much faster, much healthier rate, one might not expect their monetary authorities to keep interest rates so low or to encourage easy credit. Yet sustainable growth remains the governements’ (plural) #1 priority. In spite of warnings over irrational exuberance and the potential for inflation, there are no plans to tighten rates before 2010… and they will follow the U.S. playbook.
Of course, stock prices are already up an extraordinary amount in 2009. And even if we haven’t seen anything yet for Asia (we probably haven’t), the road’s going to be volatile.
So how might you participate in the probability of stock assets inflating without buying in at the wrong time? In mid-July, when I called for investors to consider adding to Emerging Asia (GMF), I evaluated the support that GMF received at its 50-day moving average. Prices had stabilized in and around 59.
Similarly, we’ve seen GMF pull back 7.2% from its high to trade near support levels. If we’re able to hold the levels near the 50-day support in a similar manner to the June-July stock asset pullback, I’d consider adding more to the position. (Buyer beware… always use stop-losses!)
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.