Today I’d like to follow up on that prediction, and share with you why emerging-market investors should do even better in 2013 than in 2012. Plus, I’ll give you five predictions about the global sectors that are set to shine in the next calendar year.
2012 was indeed a good year for emerging markets overall, as they kept pace with (mostly) rising U.S. equities during the past 12 months, as you can see in the chart below.
Throughout 2012, domestic and international equities performed equally well. Year-to-date as of Dec. 20, both the S&P 500 (NYSEARCA:SPY) — represented in blue — and the Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO) — red line — returned 17.5% to investors.
Now let’s take a closer look at the stocks, sectors and countries that drove this growth … and how they stand to fare in 2013.
Why Global Markets Could Leave U.S. Equities in the Dust in 2013
U.S. sectors like home construction, mortgage finance and telecom rose 80.6%, 75.8% and 50.8% (as measured respectively by their corresponding Dow Jones indexes year-to-date).This is great news if you were invested in U.S. stocks, and the winning stocks in these sectors.
But with the stimulus coming off the economy in 2013 and additional taxes heading our way, I expect adeceleration in U.S. growth that will make emerging markets even more attractive going forward.
In 2013, as transfer payments are phased out, however gradually, and as some tax cuts are allowed to expire, disposable income growth and consumption growth will slow.
The United States will then face not only the direct effects of a fiscal drag, but also its indirect effect on private spending. In relative comparisons, then, the U.S. consumer will experience a real and permanent drop in purchasing power.
And as a U.S. consumer as well as an investor, a great way to boost your buying power is to invest (or invest more) in the right emerging markets and sectors, starting with places like …
Brazil, Mexico: 2 Top Emerging Opportunities
Just like in the United States, overall performance in the emerging markets wasn’t where the money was at in 2012. In the emerging markets, a bet on Brazil could have handed you a tidy sum … if you invested in the right place, that is.
For Brazilian equities, last year I correctly forecasted and caught the difference there between small- and large-cap issues. The iShares MSCI Brazil Index ETF (NYSEARCA:EWZ) fell 1.6% while the Market Vectors Brazil Small Cap ETF (NYSEARCA:BRF) rose a respectable 13.9%.
The crux of this was that commodity prices for iron ore and oil were depressed last year. And these have a significant impact on Brazil’s large-cap ETF.
Another big payout for global investors came from Mexican equities. Year-to-date, the iShares MSCI Mexico Investable Market Index Fund (NYSEARCA:EWW) was up an eye-popping 33.2% — easily beating the U.S. and emerging-market benchmarks.
Just as an example of the types of returns you can make in just a few short weeks or months, my Emerging Market Winners members are currently up 13% in a Mexico-based stock that’s traded right here on the U.S. exchanges. They also have up to 50% gains in a Brazilian banking play and a whopping 93% potential gain to date in a global infrastructure play.
There are plenty more profit opportunities where those came from. And so today, I want to share with you five trends I see driving the global markets — and your potential profitability — in 2013.
Prediction No. 5:
Tech and industrial titans will move their battle for global domination to emerging-market shores.
Brazil, Russia, India and China — the “BRIC” nations — are showing budding potential for corporate expansions, especially in consumer markets.
Amazon.com (NASDAQ:AMZN) has already spread its wings to Brazil, and U.S. tech companies like Apple (NASDAQ:AAPL)and Microsoft (NASDAQ:MSFT) are looking to China for major growth opportunities.
Heck, even the Brazilians see an opportunity in this area, as they expanded airplane production into China and now are headed for additional sales in Russia, too.
Prediction No. 4:
As consumer de-leveraging takes hold in developed countries, look to the emerging middle class to use more financial products.
The rates for lending have been discouragingly high in places like Brazil. And with the pressure from the government to make more funds available, some banks will likely ease up so that they can retain and grow their market share.
It should be an interesting year to watch the Brazilian banks battle it out while still remaining profitable and strongly capitalized.
Prediction No. 3:
Coal companies will continue to have another rough year.
U.S. Steel (NYSE:X) doesn’t expect a rebound for coal in 2013. In fact, in a recent call, management said it expects coal costs will be down “significantly” next year.
In that case, steel companies — and other companies that use coal as a major input — could receive some cost benefits to help offset slow revenue growth.
Prediction No. 2:
Touch screens will be the new mantra in computing, as this Christmas season ushers in the era of the pads and slates as the largest market segment of computing devices.
If you spend any amount of time with your smartphone and/or your tablet device, and then sit down at your computer to do some work, you probably have a moment or two of wanting to point-and-click with your fingertips and realizing that you can’t.
Not yet, anyway. However, Intel (NASDAQ:INTC) executives have said that the touch trend will continue to grow in 2013 and create new demand for products that use this technology.
Tablets and other portable devices are increasingly replacing some of the functions of traditional desktops and laptops — and could eventually replace them altogether. And so, many tech companies will need to introduce new approaches to stay relevant.
One of the changes you’ll see in 2013 is the launch of Microsoft’s Windows 8 in October. With it, touch-based computing is continuing its shift from just the smartphone and mobile world to the more-traditional laptop and desktop realms.
Hardware makers that feature Windows — like Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ) and Acer (symbol 2353 on the Taiwan Stock Exchange) — have rolled out touch-enabled, Intel-powered Ultrabooks. But many non-touch-based offerings remain, so be sure to keep your finger on the pulse of this trend!
Finally, keep in mind that demand from U.S. consumers is only part of the story in the sectors and stocks we’ve discussed today. The presence and power of the great global consumer is on the rise. And so, if you only choose one prediction to take to heart today, it’s this one …
Prediction No. 1:
Emerging markets will once again be where the best trade ideas come from.
The long-term advantages remain in the hands of emerging economies, emerging technologies and the new emerging middle class, a topic we discussed last week.
As this season winds down, I am working on more predictions for the coming year and look forward to sharing these at our Weiss Global Growth Conference in January. (Enrollment closes on Monday — call 1-800-291-8545 TOLL-FREE for details on how you can make your 2013 the most profitable year yet!)
In the meantime, I still think emerging market equities will still provide some of the best opportunities investors can find in 2013 — the key is to be selective and watch global trends.
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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