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Global Emerging Markets (GEMs)



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.

Watching financial television today is the equivalent of taking a long trip with kids that are constantly asking that very question. At some point, you get the urge to yell “yes” just so they will shut up. Unfortunately, the current situation actually demands all of our attention so it’s fair to ask – have we seen the bottom?

Aside from day/swing traders, this not the question most should be asking. Trying to pick a bottom is no different than playing numbers on roulette. It’s a random event that no one can predict. The better question might be – in the next 6 months, is the market more likely to be down 20% or up 20%. With this question, you can eliminate the noise and focus on probabilities to see if they are in your favor. Trading is actually a lot like poker – if you play the odds, you will win the in the long run. But you can’t win every hand.

So, are the markets more likely to be up 20% or down 20% 6 months from now?

Let’s look at the facts-

The world is experiencing a massive unwind of debt caused by years of easy credit and backed by insufficient savings. This is a secular trend that will take years to play out. Consumers will save more and borrow less. Companies will use resources to pay down debt instead of seeking new opportunities which will limit growth and new jobs. The government will implement new policies that are less market friendly. New regulations on banking and other industries will be reactive and overly burdensome. The long term picture is not conducive for a rising stock market and the market is clearly shouting this fact.

The arrival of this unwind has also led to a cyclical retrenchment. Consumers dramatically lowered their spending and companies have lowered production in kind. Lower production means fewer jobs which goes full circle to reducing consumer spending further.

Is it any surprise the market is down 60% from its highs? Probably not, but do the markets fully reflect this information? There’s no way to know for sure. It’s probably safe to say, however, that the markets are closer to the point of recognition than even just a month ago. But even if the markets fully reflect all the negative news, there must be catalysts for stocks to go up.

The secular trend is negative and stocks probably aren’t going to return their historical average any time soon. But it doesn’t mean the economy will retrench the entire time and stocks will never rally. The economy works in cycles and it’s quite possible it is nearing an intermediate trough. Economic activity has fallen off dramatically, but there is still business being conducted. People still need to replace a dishwasher if their old one goes bad. People still need clothes as their old ones wear. There are only so many purchases that can be put off and eventually consumer spending will see a bounce. Since businesses are operating with lower inventories, they will begin to ramp up production and hire new workers. Is it possible that the rise in commodities like oil and copper are showing these signs of stabilization? With stocks off 60% in just over a year, do they reflect any chance of a recovery in the second half of 2009?

The point of this article is not to give direct answers, but rather put everything into context. There is no doubt things are bad and quite possibly getting worse. But just as there is irrationality at the top of markets, the same thing can happen at bottoms. The key to profitability is to see beyond what everyone else is looking at. An example – no one believes the stimulus package has any chance of working. Without endorsing or condemning, it’s a *$787 Billion* package! Some of that money will make it through the economy. To put it in perspective, the $185 billion tax rebate led to a 3% rise in GDP in the early stages of this recession. That growth happened despite the fact that a lot of that money was saved rather than spent. Is it possible we could see that at a minimum? And if so, do stocks reflect anything more than flat lining for the foreseeable future?

So, let’s ask again – are stocks more likely to be 20% higher or lower in 6 months?


Disclosure: Emerginvest is an international finance portal, providing analysis and data on 120+ world markets to help individuals find investments from around the world. The author, Chris Harne, does not intend this to be actionable investment advice.

Posted 03-10-2009 4:35 PM by EmergInvest