Emerging Market Rally to Continue, ETF Gurus Agree

Jim Rogers and Nouriel Roubini. Each has been credited with spectacular powers of foresight.

Writers happily proclaim that Mr. Rogers predicted the commodities boom in 1999. Few seem to mention that Mr. Rogers failed to see the commodity bust of 2008 that knocked a diversified basket of “stuff” down -50% to -60%.

CNBC enthusiasts proudly point to Roubini’s 2006 warning of impending financial disaster. Yet Mr. Roubini also called the current cyclical bull a “dead-cat bounce” in May. Wrong indeed. He has also spent most of his media opportunities declaring a bubble for every asset – gold, oil, stock, bond.

This is where it gets interesting… when two gurus start calling each other to the carpet. Mr. Rogers slammed Roubini recently, chastising his guru-in-crime with… ”It’s clear that Mr. Roubini hasn’t done his homework, yet again.”

You see, Mr. Rogers believes that all commodities will revisit the 2008 highs. He expects gold will get above $2000 per ounce in the next decade. And he believes emerging market stock prices are easily justified by the growth taking place in those regions and countries.

Mr. Roubini, on the other hand, counters that investors are borrowing the weak U.S. dollar at non-existent interest rates to invest in speculative growth assets. The dollar-funded carry trade -- borrowing form one country to investing in higher-yielding or higher appreciating assets elsewhere -- is pushing capital into emerging markets. If the dollar surges 15%-20%, he reasons, the sell-off would be catastrophic.

In spite of the “back and forth” between these modern-day warriors, there’s actually more near-term agreement than disagreement. That is, neither Rogers nor Roubini sees riskier assets falling anytime soon.

In fact, the head of market research at Roubini Global Economics, Arnab Das, expressed that emerging market assets are likely to extend their biggest rally in a decade. Mr. Das believes that while occasional corrections may occur, a surge in emerging market asset prices will have many legs because of the world’s willingness to borrow U.S. dollars to buy stocks, commodities and foreign currencies.

Rogers agrees. He too sees that the dollar’s decline is helping to fuel the worldwide purchase of stocks and commodities. He just doesn’t think high prices have anything to do with “bubbles.”

So whether you follow Jim Rogers, Nouriel Roubini, or neither one of them, which ETFs might benefit from their thinking? Here are a few ideas:

1. If you believe that investors will keep borrowing U.S. dollars to purchase higher-yielding currencies in the emerging market world, there’s the WisdomTree Emerging Currency Fund (CEW). There’s also the developed world version of the carry trade in the PowerShares G-10 Currency Harvest Fund (DBV). At the present time, both benefit from a weakening U.S. dollar.

2. Commodities are priced in U.S. dollars. All other factors remaining equal (e.g., supply, demand, speculation, etc.), the lower the dollar, the more that a given commodity will cost. If you want to benefit from rising commodity prices, there’s the Elements Rogers International Commodity ETN (RJI). There’s also the GreenHaven Continuous Commodity Index Fund (GCC).

3. Finally, R & R don’t seem to have any dispute about emerging stocks going higher. The dispute seems to be in the nature of bubbles, the fundamentals behind asset price justification and the likelihood or non-likelihood of an ugly ending. For now, however, they’re both on board for China (FXI), Singapore (EWS) as well as broad-based exposure in Vanguard Emerging Markets (VWO).

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

[Plant the s...:]

There is money flowing into commodities based on speculation about commodity demand and ETF flows from investors. If this doesn't materialize then what happens to these investments.

Nov 06 04:59 PM

[tipalia:]

... if this doesn t... IF is a big word used most of the time by people that are , usually , hard to please . Don t eat because if....., don t drink because if..., stay in bed because if..., etc, etc... You got it ? maybe not because if...

Nov 07 01:46 PM

[Anonymous 2:]

Just FYI: Following is an interesting comment on the recent Schwab ETF launch.
In My Opinion - Very innovative - and will cause many industry changes for the better of individual investors - especially among other ETF sponsors and financial entities using and offering ETFs. Somewhat negative for most - all? - continued growth of Mutual Funds.
Tal Fletcher

news.morningstar.com/a...

Nov 07 04:54 PM

[tagthatstock:]

Jim Rogers and Nouriel Roubin seem more to be 2 faces of concern and neither actually concerned. i read your notes and all i see are too 'bulls/bears' on the same side of the same trade: both long and both 'believing in bubbles',,,,it would be justice just to wipe both of them out in short order,,,then work our way up the food chain.

magic math and extremely liberal ideas about what is real/not real in biz terms since the 60's hasnt gotten anyone much better in financial terms.....if the population is being fed garbage by the head gurus,,,then its only a matter of time everyone falls because of it.

Nov 10 08:13 PM