This Sector’s About To Explode
The Dynamic Wealth Report
October 2, 2009
This Sector's About To Explode
by Corey Williams, Editor
If money makes the world go ‘round, then banks are the engine
fueled by money. The financials are unlike any other industry. It’s the
one industry essential to the success of all others.
Think about it. Does a consumer staples company like Kraft (KFT) care if
semiconductor sales are slumping at Intel (INTC)? No. Because it doesn’t
directly impact their business.
But it’s a different story for financials.
Banks lend money to small businesses. Without the loans, many would never
get off the ground. Those same loans help existing businesses grow. Lending impacts every aspect of a growing business.
Not only do they fund business growth, they fund consumer spending. Without banks, consumers are forced to save huge amounts of money before
making a single purchase. (How long would it take you to save up enough
money to buy even a modest $100,000 home?) Without these loans, we’d have
a lower standard of living.
A strong financial system has allowed the global economy to grow and the
standard of living to improve. Just look at all of the comforts we take
for granted today that didn’t even exist 100 years ago.
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Our way of life is possible thanks to our financial system. People
invest money in companies to create goods that improve our quality of
life. Banks lend money to people so they can buy those goods. And the financial
institutions turn a very nice profit along the way.
In fact, they’re one of the most profitable parts of the economy when
times are good.
There’s a downside however. When the economy is booming, nobody thinks it
will ever end. Banks want to lend more money and people want to borrow
more. Eventually good borrowers become harder and harder to find. So
banks start to loosen their lending standards to keep their business
growing.
Everything’s great ‘til the music stops. Then loans made to the least
credit worthy borrowers go bad quickly. That’s the situation financial
institutions in developed countries are facing today. It led to the
economic devastation and credit crisis we’ve been living through.
Today these banks are still dealing with the hangover from a big lending
binge. The old loans from the last boom are weighing down the banking
stocks. These loans bring an unknown element of risk into the picture.
And they’re the only reason I’m not outright bullish on the entire
financial sector.
But what if there’s a way to invest in the financial industry without
the hangover from the last boom.
Well you can do just that with a new ETF launched last month. Emerging
Global Shares now has an ETF focused entirely on financials in emerging
markets. It’s the Emerging Markets Global Titans 30 Index (EFN).
EFN owns stock in 30 different banks and other financial companies in
emerging markets. They’re spread across ten different countries. Chinese,
Brazilian, and Indian stocks make up the lion’s share of the ETF.
The deck seems like it’s stacked in EFN’s favor.
First off, financial companies in emerging markets aren’t saddled with
toxic debt. Just think how happy Citigroup (C) would be in that
situation.
Secondly, emerging markets' economies usually recover faster than
developed countries. They also grow at a much quicker rate. And we all
know how important growth is.
And lastly, the financial system isn’t as developed in many emerging
markets. Now as the global economy recovers, these countries will see a
major growth spurt in their economy and financial industry.
Investing in EFN is almost like traveling back in time to invest in JP
Morgan Chase (JPM) and Citigroup when they were just starting out.
There’s no question about financial companies ability to turn a profit
in a good economy. Now as the world economy recovers, financials
are poised to rake in huge profits. And there’s no better way to
do it than the emerging markets. Thanks to EFN, you can do it with one easy purchase… (Aren’t ETFs great?!)
• Apple (AAPL) was upgraded by UBS this week.
They now have a buy rating on the stock. And a gigantic $265 price
target.
• Winnebago (WGO) was downgraded to an underperform rating
by Robert W. Baird. They’re concerned recovery will be slow and
profits scarce for the entire industry.
• Roth Capital started coverage on Lime Energy (LIME)
this week with a buy rating. The energy company has won new
contracts to help improve energy efficiency.
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