In our last visit late August, we told you about our concentration of our clients investments in the emerging market country exchange traded funds (ETF’s). One reason for our profits in these countries is the fact that the hedge funds and pension fund managers have just recently discovered the opportunities in emerging markets but they had a hard time on how to invest overseas. Foreign objective mutual funds were the only game in town for 50+ years. Of course they know that Apple, Intel, Wal-Mart and GE have some foreign business exposure but many don't have a clue on the midsized companies in say, Brazil. (See Brazil Mid Cap ETF. ( BRF). These hedge and pension funds will continue to pour tens…even hundreds of millions of US Dollars into single country fund ETFs to diversify their client’s money away from an all-USA position. Money they have pulled from the US markets mainly is the supply source.
A more fundamental reason for the superior gains we have seen for our clients can be traced to the urbanization of these countries and the move towards a middle-class type society of consumers in the emerging markets of the developing world. Over 1 million urban residents are created each week in the developing countries. India alone will have 10 million urban residents a year move to the cities for over 20 years. China will have 17 million people a year moved to the cities for the next 20 years. 900,000 Chinese are estimated to be millionaires at years-end vs. 2.9 million here in the USA. China’s population is 4 times the United State’s. The rural peasants and farmers are now becoming lower class consumers. When they become factory or construction workers, and later educated to office workers and technicians their standard of living will increase and their appetite for consumer goods will soar along with the growth of the economy.
Now the subject of slums and the troubles that come with them will have to be addressed longer term, and not every Indian and Chinese will be buying a Mercedes, but the growth of these ETF investments is probably assured in developing countries (include Brazil and Russia too), and we want to be on-board the bullet train for the profitable ride. One last point….and I am not claiming “cause and effect” just a correlation: All these fastest growing economies have little or no taxes and NO welfare systems. County Funds at the bottom of our list are France, Spain, and Greece.
Stock Market Update
We'll the history books were favorably wrong for September and so far this month. The popular stock averages gained 7-10% since late August, and are hitting yearly highs as we go to press with this post. The Dow Jones Industrials had the best September since 1939!
Country ETF's and our gold and silver ETF's performed admirably during this period. Yields of 3-1/2% to 5.25% are still available in the bond ETF market now; so that's where we keep cash awaiting investment. As we follow the trend of the markets, perhaps we should close the history books and "stick to our kinitting", to what Mr. Market is telling us today. Weigh in with your comments by clicking on "post a comment" at the end of this blog. I will reply to your questions post-haste!
~Barry Unterbrink, CRPC