The Emerging Markets Selloff Is A Buying Opportunity

After last week's worldwide slump in the markets, my phone is ringing off the hook with panicked investors on the other line. All are asking the same question. “What should I do? My answer is “If you own, keep your powder dry and wait out the decline. The markets and your stocks will rebound.

For new money, I say buy -- this is the opportunity of the lifetime. A legendary trader once told that his three favorite days were the days that his children were born and October 19, 1987. He made his fortune and reputation during the crash of 1987 by buying heavily. Nathaniel Rothschild once said, “The best time to make money is when there is a blood in the streets.”

The decline of 9% in the Shanghai Markets was the stated excuse for the start of the worldwide decline of markets. Most people did not realize that this market had already appreciated 20% for the month of February so a correction was in order.

The Shanghai market has been a speculator’s dream. Millions of Chinese were daytrading this market that was closed to foreigners. The Shanghai is not reflective of the true state of the Chinese economy. The other Chinese stock market indicator, the Hong Kong Hang Seng Index only fell 1.9%.

If China with its billion plus population comes down with the flu, the rest of the world get sick with pneumonia is an old stock market staying. This accounts for some of the severe reaction in the world wide markets last week. I am not sure that this stock market dictum is as relevant today as it used to be. The billion plus Chinese population is very tempting but very few international companies have been successful in China. This dilutes the effect of the Chinese Flu.

The Chinese economy is very dependent on exports to the United States and the state of the US economy. The Commerce Department announced that durable good number dropped 7.5 % last month. This is a big decline that traders would sit up and take notice of. As a long term investor, I do not always concern myself with monthly numbers especially when much of the drop was tied to a lack of orders for Boeing.

Since his days at the US central banker, Alan Greenspan has been known as Dr. Doom and Gloom. Yesterday was no exception except that people forget that he is no longer chairman of the Federal Reserve. Greenspan predicted that the economy could slip into a recession by the end of the year. On the other hand, the present central banker gave mostly an upbeat presentation to Congress recently.

The question now is what stocks to buy. Israel is considered an emerging economy so many Israeli stocks were hit harder than the indexes. I am not sure that Israel should be lumped in with China.

HSBC said yesterday that Israeli economy never looked better and they expect a 4.9% growth rate for 2007. For this reason, the declines in Teva (TEVA) (5.33%), Internet Gold (IGLD) (13.64%), Checkpoint (CHKP) (5.49%), Retalix (RTLX) (5.05%) and Partner (PTNR) (4.73%) seem overextended. The declines in this stocks was greater than the 3.47% decline in the S&P 500 and the 3.86% decline in the NASDAQ index where many Israeli companies trade. I am recommending these stocks on a trading basis only.

For those brave enough to tread into Communist waters, I would not recommend individual stocks but an exchange traded fund like the iShares FTSE/Xinhau Chinese 25 (FXI). The shares of this exchange traded fund will track any rebound in the Chinese market accurately.

The most important advice that I keep investors today is not to panic. Corrections are to be expected and are normal. It is part and parcel of investing. Every day can not be an up day.

Disclosure: Author has no position in stocks mentioned