George Leong: It’s a fact: Janet Yellen will take charge of the Federal Reserve in the New Year and unless something drastic happens, the Federal central bank is likely to maintain its flow of easy money into the economy—albeit, perhaps at a slower pace than that dictated by current chairman Ben Bernanke.
The reception of Yellen was evident in the emerging markets, as shown by the chart of the iShares MSCI Emerging Markets below and the shaded oval.
With Yellen at the helm, I expect the continued flow of liquidity will benefit the emerging markets. This is because the easy money will keep U.S. bond yields lower, and investors, armed with the cheap market, will search for higher yields and high potential investments that, at this time, are generally found in the emerging markets. This is why the emerging markets got a boost when Yellen was appointed.
Chart courtesy of www.StockCharts.com
Now, while there were many who ditched the emerging markets, I was not one of them, as I continue to feel the key to economic growth in the global economy will be tied to the rise in consumer spending in the emerging markets. Simply put, the emerging markets will continue to be an excellent place to have some capital invested, whether it’s the BRIC countries (Brazil, Russia, India, and China) or the four “Little Tigers” in Southeast Asia (Hong Kong, Singapore, South Korea, and Taiwan). I’m bullish on these areas of the world. When you look at the wealth creation in these emerging pockets, you’d understand why I am.
Just take a look at the major acceleration in consumer spending in China. Growth in consumer spending there is somewhere in the neighborhood of 13%, which is staggering. In my view, you cannot ignore China. And while India is also worth a lot, it’s still a ways away from being as economically influential as its neighbor China. Just the combined populations of over two billion people in these two countries should be attractive for retailers due to the potential for a wide consumer base and strong consumer spending.