At the start of the year 2006 I had suggested that investment in Emerging markets and Gold would be the way to go. So where do we stand today. Well, I reiterate my suggestions. The fundamentals in India and China are good. Wealth is being created in Pacific Basin countries. These countries would snatch more jobs from US and UK. Long term, its a growth story for these countries. The valuations are good and the current price correction has just added the icing to the cake. Point of concern, there is too much volatility in the markets. It is un comforting to see the BRIC markets fluctuate 2-6% in single sessions and unnerving to know that these huge fluctuations have become chronic. Seems like the markets haven't yet matured. For the Indian markets, I would like to see the SENSEX touch 8500 during the second half of this year and I wouldn't be surprised to see 8000 also. But don't bet on the bottom to get into the market. Anything below 9000 should be a good entry point.
US Fed is taking measures to combat inflation, by increasing the interest rates. Signaling to the investors that Dollar will be stronger and more attractive than other currencies/Gold/other investment havens. This would definitely cause the investment money from countries that have Current Account Surplus to push more money into US. I am not sure what would the Fed do with all the money that it may attract and how it would pay the higher interest rates to those who invest in US Treasury bonds. Because banks will not be able to push this money on to consumer at such high, inflation fighting, interest rates. The cost of money will be too high as Bernanke bumps up interest rates and that would take its toll on the growth of the economy.I wouldn't be surprised to see the money going back into the emerging markets because GROWTH is happening there.
Housing markets have already started their downward journey and further correction in store due to the increasing interest rates in US. Just wait till 2007/2008 when the 5/1 ARM loans of many consumers will mature. The interest rates will be too high to sustain the mortgage payments and thus there will be an up tick in mortgage payments defaulters.
Overall, this is an excellent time to get into Emerging markets. So the mantra is, "Stay Put in Emerging Markets". The new globalized flat world is prone to Contagion more than ever and a new paradigm is needed in the investment portfolio, which is to hold on to gold(5-20 % of the portfolio).
BUY
MFunds: MMKBX, TEDMX, Some Gold.
Stocks: YHOO, TRID
