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Global Investing is the Future (FXI, GDX, GDXJ, ADRD)

April 13th, 2012

Emerging market and global investing must play a part in your portfolio make-up. The future of your portfolio depends on it. Here’s why…

In the mid-1980s, the share of global gross domestic product held by the G-7 countries (the most developed first world countries) was about 70%…

Today, that number is fast approaching 50% and will be below that amount by the end of this decade.


Is the world shrinking? Not at all. In fact, global GDP is expanding. You probably won’t be surprised to note that the share of global GDP held by the United States has fallen in percentage term. However, as my old stats teacher used to say… people lie, numbers don’t.

What’s missing from this equation is that the share of GDP in terms of actual dollars is growing for the United States… it’s just that it’s also growing faster for many other places.

China, for example, has tripled its share of Global GDP since the 80s, and so have place like India and Brazil. That said, it’s pretty obvious that there’s a lot of opportunity outside of our borders, opportunity that’s been exploited adeptly by people like Alexander Green in his global trading service, The Pacific Advantage Alert.

It’s time that you made the commitment to yourself and future generations to take the steps required to understand not only what’s happening around the globe, but also learn how to trade global stocks today, before you miss the party altogether.

In my book Where in the World Should I Invest, I dedicate quite a few pages to showing you what to buy and how to buy it. I will give you a quick summary here – you can find out much more detailed information in the book.

The Three Ways to Invest Abroad

There are three ways to buy foreign shares:

  • ADRs and GDRs – This is the simplest way, but gives you limited choices. ADRs and GDRs are American and Global Depositary Receipts. They’re shares traded on U.S. or European Exchanges, which represent the underlying shares in the respective foreign countries. They’re sponsored by major banks that issue the shares to correspond with the local share market. For example, a company like Telmex, the Mexican telephony giant, trades in the United States, but the U.S. shares are ADRs based on the actual Telmex shares that trade in Mexico.
  • Funds – Exchange traded funds, mutual funds and closed-end funds contain baskets of foreign stocks, giving you exposure to specific countries or sectors. While these are even more popular than ADRs, they don’t give the specific coverage you might desire. After all, you might hate the Chinese banking sector, but by buying the (NYSEArca:FXI) (the Chinese ETF that represents the top 30 Chinese stocks) you end up with a hefty number of financial companies.
  • Going Local – This means buying shares of companies that trade on the local market, which may not have ADRs or be in any funds. Companies like the largest food producer in Thailand, or a Malaysian rubber company, or a cement company from Indonesia. These might sound exotic, but their operations are no dissimilar from their U.S. counterparts except for their enormous growth potential, regionally and globally. Gold miners from South Africa, Australia and even Latin America can be bought locally if you know how. Buying locally gives you an edge in currency and spreads, besides choice. When you buy ADRs of foreign companies or even shares through many U.S. brokers, you pay an extra little bit for currency translation and trading costs. Buying locally allows you to place orders based on real time pricing. This used to be more difficult before the age of the internet. And, not until quite recently could you do these trades on your laptop through a discount broker. Pretty much the same way you buy securities on U.S. exchanges.

Simply put, global investing is here to stay and it is the future of investing.

Good Investing,

by Karim Rahemtulla, Investment U Research


NYSE:FXI, NYSE:GDX, NYSE:GDXJ


 

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