Your Asia Profit Strategy For The Rest Of The Year (FXI, EEM, IDX, EPI, VGK, IEV)
Tony Sagami: In last week’s video issue, we talked about the World Bank’s discouraging view of Europe (NYSEArca:VGK) and the United States, and its optimistic view about China (NYSEArca:FXI) and its Asian neighbors.
This week two more international agencies, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), rang a similar warning bell about western economies.
Today let’s continue this discussion, and I’ll also share with you three steps for protecting yourself — including one of my favorite ways to make money that can actually let you sleep well at night.
But first, let’s talk about what the IMF had to say.
Back in September, the IMF forecast that the global economy would grow by 4% in 2012. It reduced this forecast to 3.3% last week in its new World Economic Update report.
Like the World Bank, the IMF expects conditions in Europe to get worse. In the best-case scenario, the IMF expects Europe to experience a recession. However, it warns that things could get REALLY UGLY if Europe’s leaders fail to stop the runaway spending and come up with viable solutions to refinancing the current mountain of debt.
Olivier Blanchard, the IMF’s chief economist, had this to say:
“The world recovery, which was weak in the first place, is in danger of stalling. But there is an even greater danger, namely that the European crisis intensifies. In this case, the world could be plunged into another recession.”
That is a pretty pessimistic outlook, but that’s NOTHING compared to what Christine Lagarde, the head of the IMF, had to say:
“It is about avoiding a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse … The longer we wait, the worse it will get. The world must find the political will to do what it knows must be done.”
Is this a picture of the past … or the future?
A 1930s moment? Wow! What Ms. Lagarde is talking about is a Depression-era collapse that could spark a European financial meltdown.
Now, nobody knows how ugly things are going to get, but I believe there is little doubt that conditions in Europe are going to get even worse.
However, even though Europe has an impact on the global markets, it likely isn’t going to bring all of them crashing down with it, should there be a collapse. In fact, despite its proximity to the euro mess, Asia is doing just fine … in fact, it’s thriving. This is why a chunk of your investing capital belongs in the companies that are set to grow right along with it.
Survey: Asia Growth Intact Amid Euro-Zone’s Troubles
Just like the World Bank, the IMF expects emerging markets to chug along just fine. The IMF forecasts the emerging countries will grow by 5.4% this year and 5.9% next year.
Of those emerging markets (NYSEArca:EEM), the IMF was the most-positive about China, which the IMF expects to grow by 8.2% in 2012.
I don’t know about you, but I’ll take 8.2% growth over NEGATIVE growth every day of the week!
But let’s just assume for a minute that the economists of the World Bank and IMF don’t know what they’re talking about. Instead, let’s ask the people who run the largest corporations in the world whatthey think.
According to a new survey from PricewaterhouseCoopers, 48% of the 1,258 CEOs it polled said they expect the global economy to get worse in the next 12 months. Some 34% expect it to stay the same, and a small 15% say that the economy will improve.
What did these same CEOs say about China? More than half (51%) of them said they were “very confident” about the prospects for China.
Plus, the ADB knows a thing or two about Asia, since it loaned $17 billion to 40 developing countries there in 2011 alone.
Haruhiko Kuroda, the head of the ADB, forecasts Asian economies — led by China, India (NYSEArca:EPI) and Indonesia (NYSEArca:IDX) — will grow by around 7% in 2012. Kuroda also predicted that China will continue to lead Asia’s growth in 2012, expanding its economy by more than 8%, followed by India at between 7% and 8%, and Indonesia at around 6.5%.
The ADB expects that Asian prosperity to last for a very long time. It estimates that Asia will account for about 52% of the global economy by 2050. Wow!
But you don’t have to wait four decades to benefit from this tremendous expected growth.
Your Asia Investing Strategy for the Rest of the Year
Unless you think the International Monetary Fund, the World Bank, the Asian Development Bank, and over a thousand of the most important CEOs in the world are completely wrong, you need to make Asia — especially China — an important part of your investment strategy.
Here are three steps to get you started:
First, reduce the amount of dollar-denominated assets you own. I’m talking about U.S. stocks, U.S. bonds and U.S. real estate.
Most of us can’t do anything about our homes, but we can shift some dollar-denominated financial assets into the stocks and bonds of strong, growing economies such as China, Singapore, Malaysia and India.
Second, carry a stash of cash. Europeans don’t have a monopoly on spend-too-much politicians. The U.S. has amassed $15 trillion in debt and the Congressional Budget Office expects to see a trillion dollars added each year for as far as the eye can see.
You need to build up a safety net of sleep-at-night cash. My favorite parking place is the Merk Hard Currency Fund (MERKX), which invests in the short-term AAA debt of the world’s economies with the strongest economic and monetary policies. This fund is essentially a non-dollar money market fund with very low volatility.
To be fair, I need to disclose that my Asia Stock Alert subscribers already own this little-known gem of a fund and are sitting on a nice double-digit open gain. Join them now and you’ll be among the first to get my top picks in this space.
Lastly, load up on hard assets. Hard assets are one of the few asset classes that could thrive if the European debt crisis accelerates and tanks western currencies.
The most obvious hard asset is gold, but don’t forget about oil, rare earth minerals, poultry, cotton, cement, timber, copper, natural gas, wheat, potash and even water.
For example, my subscribers also own the largest silver producer in China, and the largest gold retailer in the world that happens to be sitting on a Fort Knox-type inventory of gold, as well as shares in the largest coal and palm-oil company in Asia.
Don’t let yourself fall victim to the “inaction, insularity, and rigid ideology” that Lagarde warned about. Doing nothing is going to be a very painful decision.
I have little doubt, however, that you better adjust your portfolio to reflect the new dangers in Europe (NYSEArca:IEV) as well as opportunities that are now unfolding in Asia.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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