Insights & Advice

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Investors should look east

American investors tend to focus almost solely on their own markets. While every nuance of each day’s developments is debated ad infinitum, short shrift is usually given to what is happening overseas. For example, can you tell me how the Chinese stock market has fared this week?look

For most of us the answer is no. The Shanghai Composite Index gained 9.5% this week. To put that in perspective, the S&P 500 Index is up about 12% and took almost the entire year to get there. The Chinese index has rallied over 21% over the last month and many foreign analysts are upping their expectations for the market in the months ahead.

Do not go out on Monday and buy a China fund. The market has been up every day for the last 11 and there will surely be a pullback in the coming weeks. My readers are aware that I have warmed up to China over the past several months, and that bet seems to be paying off. And, by the way, it is now official; the Chinese economy has overtaken our own. We are no longer number one. Today, we are only the second largest economy in the world, according to the International Monetary Fund (IMF). For the first time since Ulysses S. Grant was president we are no longer the leading economic power on the globe.

As you know, China is in transition economically (from export to a consumer-led growth economy). Over the last two weeks, the Chinese central bank has cut interest rates and expects to reduce them again in the weeks and months ahead. At the same time, in tandem with monetary policy, the government continues to use fiscal policy to increase the growth rate of the economy. Something our own government has failed to do.

By now, investors are conditioned to buy stocks when these conditions occur and China is cheap compared to the rest of the world. From a technical point of view, the stock market has “broken out” of a three year trading range on big volume.

And don’t forget the third largest economy, Japan. The Nikkei 225 Index has hit the highest-level since mid-2007 but has a long, long way to go. Of course, investors should be aware that the Japanese yen continues to plummet to around 120 to the U.S. dollar this week. As a U.S. investor, the rising stock market and declining yen tend to cancel each other out unless you purchase a security that takes account of both trades. Call or e-mail me if you want to talk about which investments are best in that kind of market. Finally, India is also performing well and might warrant a closer look.

As for Russia, forget about it. It appears the declining price of oil is really putting a monkey wrench to Putin’s plans. The ruble has taken a nose dive as has Russian bonds. Russian banks are sucking wind as interest rates top 12% while Putin is struggling to keep a happy face on his country’s increasing economic woes.

Over here in America, markets continue to grind higher. Every attempt by sellers to take the market down is met by more buyers. Today’s unemployment data was another bit of good news, at least on the surface. Job gains came in at 321,000 for November versus 214,000 gained in October. That marks 50 straight months of job growth; the longest on record. That comes to 2.43 million jobs in the last 12 months, the best performance in 8.5 years. There was even some wage growth in the numbers with hourly earnings up 2.1% for the year. That’s not much, but it is at least in the right direction.

What’s my advice? Stay invested through the end of the year and into next year. Things continue to look up for stocks.

Posted in A Few Dollars More