US Stocks Sinking - Where Investors Should Turn Next
Global Emerging Markets (GEMs)

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Emerginvest

Emerginvest is a global finance portal connecting investors worldwide with high-quality investment research, data, and tools covering 125 stock markets globally.

In the wake of the current global financial crisis, not all markets have been affected the same way. Emerginvest points you to the international markets and sectors that have already begun growing, so that you can build a strong, globally diversified portfolio.

The current global financial collapse has been heralded as the worst since the Great Depression. It has wiped out 40% or more of many investor’s entire portfolios since September. Major banks which have stood the test of time have collapsed. Consumer confidence and housing starts are at all time lows while the unemployment rate continually creeps towards 10%. The complexities of the crisis include everything from frozen credit markets, remaining problems with credit-swaps & mortgage-backed securities, still severe levels of toxic debt, a meltdown in housing, rising unemployment, and entrenched consumers. Predictions place the end of the recession anywhere from the third quarter of 2009 until early 2011.

Unfortunately for most frustrated investors, a new wave of negative information in housing and unemployment pushed stocks lower today (the Dow fell 105.3 points, or 1.3 percent today), and extends recession predictions. In addition, Microsoft announced its first large-scale layoff in history, with 5,000 total individuals out of their 94,000.

A NYTimes article, “Home Construction Ends Worst Year Since 1959,” on Thursday stated:

“Construction of new homes and apartments fell 15.5 percent to an annual rate of 550,000 units last month, the Commerce Department reported. That shattered the previous low set in November.

It was a much weaker showing than the pace of 610,000 that economists were forecasting and ended 2008 on a dismal note.”

The extremely large amount of unsold housing inventory – 4.4 million existing homes as of November, 2008 according to the National Association of Realtors, is the highest since the 1980’s. The same report estimated that it would take approximately 10.5 months to sell off the inventory which is currently on the market. However, there might be a significant amount of pent-up supply in distressed houses, or homeowners waiting to sell until prices return to “acceptable” levels. If so, it could easily push the time to sell of existing housing inventory to well over a year. In this context, the ramifications of the rapidly slowing new home construction segment are mixed: it is simply the market responding to the flooded supply of the housing market, which demonstrates the market is attempting to correct itself. However, as housing prices look to be depressed for the foreseeable future and demand for new homes will continue to dwindle, it puts an incredible strain on new construction companies. Furthermore, it underscores the fact that the long term housing outlook (especially without government support) remains bleak.

The good news about heavily depressed stocks? They will re-inflate in the next year. The magnitude of their rebound can be argued, but few disagree that there will be double-digit growth when the market does recover – as much as 30%+. As always with the market, the biggest question is when? Many experts agree that the markets will not begin to recover for at least another two quarters and investing heavily in US stocks right now seems doesn’t seem like an especially palatable move when a never-ending trough of negative reports is announced each week, keeping markets shaky.

An answer for now is look abroad to foreign stocks. International markets have been hit harder than the US in the global storm, and in many cases their underlying financial situation is stronger than the US. For example, the cash-rich nations of Japan, Saudi Arabia, and China still hold onto a relatively strong financial support system. The excessive, knee-jerk withdrawal of foreign investment dollars from many international markets because of perceived “risk” of emerging markets caused an over-correction – pushing them further down than they typically would have gone given the market strain. Many emerging and frontier markets have already started to correct themselves in the short term from their over-selling. According to the Emerginvest Countries page, here is an assortment of countries’ market performance over the last 30 days:

Developed

US: -3.52%

Denmark: +2.24%
Australia: -3.22%
Ireland: -7.66%
Germany: -8.15%
Hong Kong: -10.99%

Emerging
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Chile: +5.79%
China: +5.66%
Brazil: +2.46%
Philippines: +1.53%
Vietnam: -0.92%
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Frontier


Sri Lanka: +16.59%
Lithuania: +8.95%
Jamaica: +5.79%
Bangladesh: +2.44%
Malta: +0.44%

While there is no guarantee of continued growth in the medium-long term, there are certainly numerous opportunities to take advantage of correcting smaller markets, or under-valued foreign companies through ETF’s. Chris Harne recently wrote about five such great ETF picks in: “How to Trade in 2009 (Part 2 of 2),”and Gary Gordon always have fantastic advice on ETF Expert.

Disclosure: Emerginvest is an international finance portal, providing analysis and data on 120+ world markets to help individuals find investments from around the world. Jonathan O’Shaughnessy does not currently hold any of the ETFs mentioned.





Posted 02-03-2009 10:22 AM by EmergInvest