November 8, 2010 - It's Off to the Races With Emerging Markets

Featured Trades: (EMERGING MARKETS), (EWZ), (RSX), (PIN), (FXI)
Brazil iShares ETF
Market Vectors Russia ETF
PowerShares India ETF
iShares FTSE/Xinhua China 25 ETF

1) It's Off to the Races With Emerging Markets. Ben Bernanke's unprecedented announcement that he is buying $600 billion in medium dated Treasury securities is tantamount to the government ordering you to pour all of your money into emerging markets. The 'RISK ON' switch has been flipped, and the Feds have poured super glue into the mechanism. We could have a moon shot up until the end of the year from here. The only price to pay is rising risk levels.

Jim O'Neil is the fabled analyst who invented the 'BRIC' term a decade ago, and? has since been kicked upstairs to the chairman's seat at Goldman Sachs International (GS) in London. Jim thinks that it is still the early days for the space, and that these countries have another ten years of high growth ahead of them.

As I have been pushing emerging markets since the inception of this letter, this is music to my ears. By 2018 the combined GDP of the BRIC's, Brazil (EWZ), Russia (RSX), India (PIN), and China (FXI), will match that of the US. China alone will reach two thirds of the American figure for gross domestic product. All that requires is for China to maintain a virile 8% annual growth rate for eight more years, while the US plods along at an arthritic 2% rate.

'BRIC' almost became the 'RIC' when O'Neil was formulating his strategy a decade ago. Conservative Brazilian businessmen were convinced that the new elected Luiz Lula da Silva would wreck the country with his socialist ways. He ignored them and Brazil became the top performing market of the G-20 since 2000. An independent central bank that adopted a strategy of inflation targeting was transformative.

If you believe that the global financial markets are back into risk accumulation mode, as I do, then you probably should top up your Brazil position, as it has lagged in the smaller emerging markets so far this year. Jim Chanos, you may be right about a China crash, but you're early by a decade!

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.