Key Figures Give Global Leaders Stern Warnings (GMF, VGK, EWJ, FXI)
Tony Sagami: It sure seems like the only thing that politicians in Washington, D.C. know how to do is spend money … President Obama’s new jobs plan will cost almost another half-billion dollars. And Ben Bernanke didn’t want to feel left out. So he announced that the Fed will drop $400 billion to buy long-dated Treasury bonds.
You would think that watching the debt disaster unfolding in Europe would give our leaders second thoughts about spending us deeper into debt.
Sadly, I think the U.S. is careening down the same fiscal path and headed for a painful day of reckoning.
And for a preview of what could happen when our country is FORCED to deal with the mountain of debt we are piling up, just look at how schools closed during the Wisconsin teachers protests earlier this year.
Just listen to what Christine Lagarde, the president of the International Monetary Fund or IMF, had to say about the European spendthrift governments:
“Developments this summer have indicated that we are in a dangerous new phase. The stakes are clear: We risk seeing the fragile recovery derailed.
“Without collective, bold action, there is a real risk that the major economies slip back instead of moving forward.
“This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction.
“Economic risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed.
“This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”
In fact, Lagarde is urging American leaders to develop credible medium-term plans to lower debt.
Robert Zoellick, the president of the World Bank said, “The world is watching and waiting for Europe, Japan and the United States to address their hard problems.”
Warning that we are entering a new danger zone, Zoellick said, “My country, the United States, must address the issues of debt, spending, tax reform to boost private sector growth, and a stalled trade policy.”
I believe all of us know that Europe and the U.S. have some serious problems that may drag the stock market down with them. The question is how badly will these western problems affect our Asian investments?
The IMF looked at the potential ‘spillover’ effect from the European credit crisis …
It looked at the United States, European Union, China (NYSE:FXI), Britain and Japan (NYSE:EWJ), all of which have large volumes of trade with one another, and found that there was a significant REGIONAL spillover effect.
In other words, China is more affected by what happens in Japan and vice versa, while euro-zone shocks matter more to its European neighbors.
In short, the IMF is saying the problems in Europe (NYSE:VGK) will not have a serious impact on China and its Asian neighbors.
Sure, China and Asia will feel some of the pain. But I think it’s a huge mistake to assume that China, with its still-booming economy and war chest of $3.4 TRILLION in cash is not better positioned to ride out any economic storm than the spendthrift western economies!
Similar to households, families with no debt and cash in the bank can manage just fine when times get tough.
The most important decision an investor can make today is to make sure their portfolio is overweighted with Asian stocks and underweighted with U.S. and European stocks.
What’s the easiest way to add some Asian exposure to your portfolio? I suggest you consider an Asian-focused ETF like SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF). GMF provides exposure to China, Taiwan, India, Malaysia, Indonesia, and other Asian tigers.
Here’s a breakdown of its top holdings:
GMF has a dividend yield of almost 2%, an average P/E ratio of 11, but an average earnings growth rate of 19%.
I’m not recommending that you rush out and buy this ETF tomorrow morning. As always, timing is everything. So you need to do your own homework, or you can join my Asia Stock Alert service for clear, concise alerts on when to get into a position and when to get out. But this ETF is a great example of how easy it is to add some Asian spice to your portfolio.
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 in UWD, 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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