Follow The Money Into Emerging Market Funds
Tony Sagami: Investors are pouring a mountain of money into the stock market this year.
After our dysfunctional politicians in Washington, D.C., forged a Fiscal Cliff agreement that both sides seem to hate, the stock market shot up and has been on a roll ever since.
If you’ve bought a bunch of new stocks, funds or ETFs in the last few weeks, not only have you witnessed some nice gains, but you’ve also been part of a near-historical run.
If you haven’t yet gotten in on all the action, there looks to be plenty more in store. But it’s probably not happening where you think it might be …
Where is All This Money Going?
A fresh study from Bank of America/Merrill Lynch shows that retail investors are responsible for some big market moves here in 2013. Inflows into stock funds last week were the second-largest EVER.
A total of $22.2 billion was plowed into equity funds in the second week of January. In the entire history of the stock market, the only week with bigger inflows was in March 2000!
Those numbers are impressive but, as always, the devil is in the details. One detail that I want to bring to your attention is that, out of this $22.2 billion, an impressive $7.4 billion went into emerging-market funds.
In fact, the fund flows into emerging-market funds were the largest of ALL TIME!
Follow the Money … Out of the Country!
If investors are bullish on the stock market, they are REALLY bullish on Asia and Latin America.
Our government leaders aren’t the only ones doing their best to goose their struggling economy. There are two big changes in government policy that I believe are going to send overseas markets–China and Japan specifically–to new heights.
Here’s why you should be paying close attention to these powerful trends …
Destination No. 1: China– Show Me the Money!
China is a Communist country, and it doesn’t play fair. Only large, pre-approved institutional investors are allowed to buy China-listed stocks–its government prohibits foreign investors from buying them.
The Chinese stock market, however, has been struggling. So, it has decided to throw open its stock-market doors for foreign institutional investors.
In 2012, the Chinese State Administration of Foreign Exchange awarded nearly $16 billion of quotas, called Qualified Foreign Institutional Investors (QFII), to big foreign investors. To put that $16 billion in perspective, this one-year amount is equal to all the money put together from 2006 through 2011.
That fresh money is the gasoline behind the new, speedy Chinese stock market rally.
Although there are no foreseeable plans for retail investors to be able to get in on the action, there are plenty of ETFs that let individuals play the Chinese market. The iShares FTSE China 25 Index Fund (NYSEARCA:FXI), SPDR S&P China (NYSEARCA:GXC) and iShares MSCI China (NYSEARCA:MCHI) are just a few ways to play China, and you could also consider other avenues like Taiwan and Hong Kong to piggyback off this trend.
If you already have some China exposure, or if you’re looking to expand your global investing reach in a slightly different direction, Japan offers an intriguing opportunity here in the early part of 2013. Here’s why …
Destination No. 2: Japan– New Politicians, Promises Means More Spending!
Our politicians aren’t the only ones who know how to spend money they don’t have.
Japan just recently held its elections, and the Liberal Democrat Party won in a landslide. Now Shinzo Abe, the prime minister from 2006 to 2007, is back in charge.
Abe has introduced a new $117 billion stimulus package that is designed to grow Japan’s GDP by 2% and create 600,000 new jobs.
Even more amazing is Abe’s intention to force the Bank of Japan, Japan’s central bank, to embark on a quantitative-easing program that would make Ben Bernanke blush.
Abe wants the Bank of Japan to buy, in unlimited quantities, whatever new debt the politicians create from increased deficit spending. The objective is to create money in quantities sufficient enough to pull Japan out of its deflationary spiral and push the yen lower.
In effect, Abe wants to strip the Bank of Japan of its independence and force it to become the printing machine for UNLIMITED government spending.
That may sound nuts on the surface. But the result is that the Japanese yen is falling … and that is VERY good news for an export-dependent country like Japan.
A recent article in the main Japanese newspaper, The Nikkei, reported that a one-yen change in the dollar/yen rate would translate into a $2.7 BILLION increase in profits for the 30 largest Japanese exporters.
Suddenly, Japanese stocks, exporters in particular, are looking extremely attractive. And the Japanese market now looks attractive to a lot of investors.
Subscribers to my Asian Century investment service are already on the Japanese bandwagon with two big-potential plays on a falling yen. (Find out how to get immediate access to these trades—click here right away!)
While I can’t share those opportunities here, I can assure you that it is easy as pie to add some Japanese exposure to your portfolio when you’re ready.
There are more than a dozen Japanese stocks—such as camera-maker Canon (NYSE:CAJ), farm equipment and machinery maker Kubota (NYSE:KUB), car-maker Toyota (NYSE:TM) and electronics-maker Sony (NYSE:SNE)—traded on the New York Stock Exchange and Nasdaq.
If you’re more of an ETF investor, you have plenty to choose from, including …
- iShares MSCI Japan Index Fund (NYSEARCA:EWJ)
- iShares S&P/TOPIX 150 (NYSEARCA:ITF)
- MAXIS Nikkei 225 Index ETF (NYSEARCA:NKY)
- SPDR Russell/Nomura Small-Cap Japan (NYSEARCA:JSC)
- SPDR Russell/Nomura PRIME Japan ETF (NYSEARCA:JPP)
- WisdomTree Japan High-Yielding Equity (NYSEARCA:DNL)
- WisdomTree Japan Small-Cap Dividend (NYSEARCA:DFJ)
And if you are really bullish on Japan, there is a leveraged ETF that can give you DOUBLE the return of the Japanese stock market: ProShares Ultra MSCI Japan (NYSEARCA:EZJ).
I am not suggesting that you pour new money into the Japanese stock market. As always, timing is everything.
Instead, I recommend that you wait for another buy signal from my Asian Century service. And if you aren’t yet signed up to receive my up-to-the-minute buy-and-sell alerts, click here now to find out how easy it is to get started!
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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