We’re slap-bang in the middle of a very dangerous game – one where the culprits aren’t thieves or terrorists, but our very own Federal Reserve and other central banks around the globe.
The situation concerns their ultra-loose money supply and interest rate policies.
By giving no return on cash or fixed-income investments like government or corporate bonds, investors are essentially being forced into the stock market and, thus, into “risk” trades.
The banks’ coordinated global moves are meant to put a floor under equities and, if successful, inflate the markets.
[ad#Google Adsense 336×280-IA]Risk-averse investors seem to have just one choice…
Sit on cash, earn nothing and watch your purchasing power erode over time.
For the record, I’ll seldom ever back such a plan. Especially when there are markets poised to outperform in the coming year.
Here’s a hint: These markets are not in North America or Europe!
How to Capitalize on the World’s Most Undeniable Trend
If we’re going to buy “risk,” we owe it to ourselves to seek out the highest potential returns. And we have one massive and undeniable trend in our favor: the shift in wealth from the West to the East.
I’ve logged thousands of miles traveling to both emerging and developed markets this year.
While it’s clear that money is being made in places like China, India and parts of South America, little of that is actually translating into market gains.
For example, despite China’s incredible growth – GDP growth in excess of 8% per year – the Shanghai Stock Exchange is trading close to three-year lows.
The most obvious reason for this disconnect? Trust…
Investors simply don’t trust the data coming out of China and Chinese companies.
Over the past year, we’ve seen numerous instances of fraud and corruption. No more so than before, but with the spotlight firmly fixed on China, these instances are more visible.
This is a good thing. With investors now more clued in to the shenanigans that occur behind the “Red Curtain,” it’s cathartic for the markets. As a result, the suffering for the Chinese market and others across Asia is coming to an end.
As investors demand more transparency, their confidence will rise. Combine this with lower interest rates and a reduction in bank reserve requirements, and the stage is being set for a powerful rally in the Asian markets next year.
I witnessed firsthand how internal demand in China for goods and services is rocketing higher – a crucial element for success. China can’t be solely export-dependent, or it will live and die by the economic cycles in the West.
Considering this reality, the course of action for investors appears to be easy, right? Buy China.
Not so fast.
You’ll do quite well next year and beyond if you stick to blue-chip names. You can pick them from the holdings in the iShares FTSE China 25 Index Fund (NYSE: FXI). Or just buy that ETF outright.
However, if you’re looking to up the ante, aim for a smaller, lesser-known market – one that will trade in correlation with China, but outpace the returns from the bigger country.
That market is Vietnam…
There’s Value (and Opportunity) in Vietnam
Following a massive correction that wiped out more than 70% of its value, the Vietnamese market is bouncing along at three-year lows.
Yet Vietnam is one of the biggest beneficiaries of what’s happening in China. That is, the country is now one of the lowest-cost centers for Asian manufacturing and a place where the Chinese have more than doubled their investments over the past five years in order to set up factories.
Sharing a border and a similar mindset, China and Vietnam make for good bedfellows. But Vietnamese companies are much more reasonably priced than their Chinese counterparts, simply because few investors are looking at Vietnamese stocks.
Coming off a massive growth binge, the Vietnamese have had to tighten their belts through monetary tightening and austerity measures to fend off inflation. Still, growth is averaging almost 6% this year.
Since posting 3% to 4% quarterly growth in 2009 (and those were lows), Vietnam has struggled to get back on track.
Inflation is still an issue, but that’s not always a bad thing in an emerging market. It’s merely a reflection of increasing price pressures, due to demand, rather than inflation that comes as a result of monetary devaluation.
Today, Vietnam’s economy and growth appears to be back on track – a trend that I expect to continue into 2012.
But the market has yet to catch up. In fact, it’s still trading at depressed levels.
Such a reality provides an excellent opportunity for investors to capitalize on the future of this mini-Tiger. Consider the Market Vectors Vietnam ETF (NYSE: VNM) a good starting point.
It may be early, but I have no doubt that Vietnam will emerge as one of Asia’s strongest growth stories in the years to come. And if China continues to ease, it could be the region’s top frontier growth opportunity for 2012.
Ahead of the tape,
Karim Rahemtulla
P.S. Next week: An emerging market so new that the first stock will begin trading in it in 2012.
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Source: Wall Street Daily