Investing in Russia and Southeast Asia

I can’t tell you how many times I have heard this comment:

“Carl, it doesn’t really matter where in the world I invest because markets always move together.”

Really?

Then why is India (NYSE: PIN) up 31% and Vietnam (NYSE: VNM) up 26% so far this year, while Austria (NYSE: EWO) is down 12% and Germany (NYSE: EWG) is down 8%?

Why have the Philippines (NYSE: EPHE) and Indonesia (NYSE: IDX) both surged 27%, Turkey (NYSE: TUR) jumped 19%, and Thailand bounced 24% in this year, while the United Kingdom (NYSE: EWU) and Russia (NYSE: RSX) are both in the negative territory over the same period?

And most importantly, why has my Country ETF Trader portfolio beaten the S&P 500 index by a nice margin in 12 of the last 14 years?

It’s interesting to note that while many of this year’s (and long-term) best performers are in the Pacific Rim, China (NYSE: FXI) is down 10% over the last five years. Why are all these markets doing so well as China struggles?

It’s simple: they are competitors to China.

Production is going to other markets in the region. Trade and investment within Southeast Asian countries is also rapidly increasing. During the last decade, foreign direct investment between these countries has more than tripled and is four times larger than Chinese investment in the region.

And the ASEAN Economic Community union set to be inked by the end of this year will fuel another round of growth.

I could go on with other examples, but you get the point. Which country markets and, in turn, which stocks you choose makes a tremendous difference in performance.

Look for Value and Momentum

Some of these Southeast Asian markets have gotten a bit expensive for my taste, but the wall of capital flowing through this region is likely to continue for some time.

Feel free to sprinkle some of these ETFs in your global portfolio, but always use a 15% trailing stop-loss, as these markets can be volatile.

If you have the time, you can, of course, do much better with more risk by honing in on specific stocks. But whether you’re picking country ETFs (haystacks) or stocks (needles), I have learned the hard way that the best strategy is to look at the extremes of value and momentum.

On the momentum side, I would look at all of these Southeast Asian markets, which I call the sweet spot of global growth. Australia, Canada, and Turkey are also in a nice uptrend.

The Rise of Russia

On the value side, Norway, Hong Kong, China, Singapore, and Japan are worth a look.

And despite my disdain for Mr. Putin and all the corruption and political meddling in the Russian economy, the Russia ETF (NYSE: RSX) is dirt-cheap, trading at only 4.9 times earnings.

Russia finally joined the World Trade Organization (WTO) last year. The World Bank optimistically estimates that this could boost its growth rate by up to 3% per year. In addition, previously protected industries may get moving through a dose of badly needed international competition.

Second, as a Pacific Rim nation, Russia is stepping up its trade and investment outreach to countries such as China, South Korea, and Japan. In fact, over the past five years, bilateral trade with Japan has already doubled, and trade with South Korea has tripled. Russia’s trade with China is now 60% higher than with Germany. These trends will accelerate as the Pacific century unfolds.

In addition to an ample supply of energy resources, Russia has geography in its corner. It takes only two to four days to get raw materials from Russia’s Asian frontier to China, compared to weeks for many of its competitors.

Finally, despite the bad headlines, the Russian economy is chugging along pretty well.

So don’t be lulled to sleep by the myth that all markets move in tandem. Be alert for the country opportunities showing great value or momentum.

Until next time,

Carl Delfeld for Wealth Daily