Tags: emerging | markets | 2013 | dollar

2013: The Year for Emerging Markets

Monday, 31 Dec 2012 07:39 AM

By Sean Hyman

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Emerging market stocks (and their currencies) peaked in late 2007, along with most other financial markets, and then tanked hard throughout the rest of 2007 and throughout all of 2008.

Then in early 2009, they finally found a floor. However, since then, the emerging markets have spent the last three years treading water sideways. Why?

Emerging markets tend to have investment flows that are very extreme. When times are good, money is flowing into the emerging markets at a fast clip. However, at even the first sign of global economic weakness, the money flows out of those countries even faster. This causes these markets to be very volatile. So the key is to catch them at the right time when the global economy is turning back up again.

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And I believe that time is now.

Oh don’t get me wrong. I don’t expect a raging bull market in stocks, but I do believe we’ll see global economic growth expand at a bit of a faster pace in 2013 than we’ve seen in years before.

I believe we’re seeing signs that the worst is over for now. While the problems that caused Europe’s woes haven’t been totally solved yet by any stretch, they are working on them and that’s all the market needs to recover.

China is also turning the corner and improving economically for the first time since the beginning of 2010. Chinese stocks have recently made a higher high for the first time in several years now.

China’s manufacturing has expanded for the past two months, coming up above the boom/bust level of 50 on the HSBC Purchasing Managers’ Index manufacturing data.

Stocks in India broke their downtrend in September and have been making higher lows and higher highs ever since on the Bombay Stock Exchange. India is leading where China will follow, as far as its stock markets are concerned.

When India and China (the 800 lb gorillas of the emerging markets) are recovering, then they will bring up the rest of the emerging market countries as sentiment improves and also as these two huge economies increase their business with the rest of the emerging market world once again.

Emerging markets should take up a smaller percentage of your overall portfolio (no more than 10 to 20 percent). But a great way to get started is to buy a broad-based emerging market exchange-traded fund that covers many different emerging market economies within it. That way you don’t have to try to figure out which emerging markets will perform the best or worst and it spreads your risk around.

Then later on, if you want to pick an individual emerging market country to focus on, you should take an even smaller percentage of your portfolio to do that.

However, I believe that 2013 will be the first year in a number of years for emerging market investing. Their stocks will do well, and their currencies will do well as the dollar declines throughout 2013.

U.S. stocks will likely perform okay, but not all that well as compared with India, China and other emerging market stocks in 2013.

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So whatever you do, make sure you have some exposure to the emerging markets. Later on in 2013, it will become obvious to many that this is a great place to be and then it will be too late to snatch up the better prices to be had within the emerging markets because they will be too much of a focus of the financial news media at that point.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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