Go With International ETFs For Growth
The Dynamic Wealth Report
September 21, 2010
by Corey Williams, Editor
You’ve probably noticed many of the world’s largest stock markets have
recently stalled out.
Come to think of it, U.S., Canada, Europe, and Japan are still well off
their April highs. And even popular emerging markets like China, Brazil,
and Russia continue to struggle.
Simply stated, it’s a tough market to find growth opportunities.
Fortunately for growth investors, some international markets are
decoupling from developed markets. They’re surging to new highs while
the rest of the world is lagging behind.
And thanks to ETFs, investors can easily buy or sell these hot growth
markets. I’ll tell you more about a few international ETFs I like in a
minute…
But first, let’s look at what’s driving growth in emerging markets.
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Emerging markets are hot right now because of their higher economic
growth rates. When you look at the numbers, the results are jaw dropping.
Many emerging markets are growing GDP at a double digit clip.
For example, China grew at a 10.3% annual rate last quarter. That’s
awfully impressive compared to the 1% to 3% GDP growth US, Europe, and
Japan are experiencing.
The other factor driving emerging markets higher is their low sovereign
debt ratios.
The balance sheets of many emerging markets are quite strong. Some
of the best have debt to GDP ratios of less than 50%, while many developed
markets like Japan and the U.S. are facing debt to GDP ratios of 100%.
The low debt to GDP ratio is helping emerging markets on two fronts.
First off, in an era where sovereign debt defaults are a real
possibility, countries with low debt to GDP are considered safer.
In
other words, they have a much lower default risk. This is making it
cheaper for governments in emerging markets to fund spending.
And that’s not all.
GDP growth in countries with low debt indicates their growth is real…
it’s not being forced by aggressive credit! This is in sharp contrast to
many developed markets who are struggling to grow GDP by increasing debt
levels.
In short, countries with low debt ratios will see continued GDP growth.
And that’s great news for the long term growth prospects of many
emerging markets.
For these and many other reasons, investors are pouring money into
international ETFs. In fact, according to Morningstar, money inflows
into international stock ETFs have led the pack over the last two
months.
Here’s the bottom line… Emerging market ETFs should continue moving
higher because of strong GDP growth and increasing investor interest.
Now, here are two ETFs you can use to take advantage of this
opportunity.
The iShares MSCI Emerging Markets Index Fund (EEM) is one of the most
popular emerging market ETFs. It has amassed more than $43 billion in
assets since launching in 2003. It’s a great way to get access to a wide
array of emerging market stocks.
EEM currently holds 681 stocks in more than 20 of the hottest
emerging markets including China, Brazil, South Korea, South Africa,
India, Russia, and Malaysia.
In just the last four months, EEM has shot up more than 23%. And it
should continue to leave developed markets in the dust.
If you want to be more focused, there are country specific ETFs as well.
These ETFs give you the ability to drill down into specific countries
and grab the best of the best.
One country flying high is Singapore.
According to Bloomberg, economists are expecting Singapore’s economy
to grow at 14.9% this year. That’s some serious growth any way you slice
it…
The country is seeing surging exports. And two new Vegas style casinos
are growing tourism activity this year.
But here’s the real reason I think Singapore is a great investment…
They’re viewed as one of the most open economies for international trade
and investment. In fact, World Economic Forum ranked Singapore ahead of
the U.S. in their yearly Global Competitiveness Report.
The way I look at it, capital tends to flow into the free markets…
markets where the government isn’t picking the pocket of business
owners. And that’s a huge advantage for Singapore.
An easy way to get exposure to Singapore is the iShares MSCI Singapore
Index Fund (EWS). It holds 31 of the largest publicly traded companies
in the country.
EWS has surged 24% over the last four months. And with economic growth
on the upswing, EWS should continue charging to new heights.
So don’t let weaknesses in developed markets get you down. Growth in
emerging markets is strong. And now it’s easier than ever to buy and
sell emerging market stocks with ETFs.
SouFun Holdings (SFUN), a Chinese real estate website,
made its American debut last Friday. The company raised $124 million by
selling 2.9 million shares at $42.50 each. It surged 73% to $73.50 on
its first day of trading.
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