Fresh Legs

Brian Hicks

Updated June 20, 2006

It’s been a good couple of weeks in the World Cup so far. I’ve been rooting for the underdogs, as you might imagine from an emerging market bull like me. Unfortunately, the traditional powers have held sway (with a few exciting exceptions like Ghana’s trouncing of the Czech Republic), and I know just why. Legs.

Legs on footballers are among the most durable in the world. In my gaming days, coaches ran us into the ground with suicides and endless runs. After your first day in the blistering summer heat, your legs couldn’t carry you back to your van.

When things get rough, a spry pair of quads and calves off the bench can get you the goal you need to get through to the next round.

It’s been a rough couple of weeks in marketland. Wherever you may be. Inflation worries have slapped investors across the face with the cold fish of weakened corporate earnings. And emerging markets have shuddered and fluttered at the thought of US equities causing a domino effect.

But is that chain of exchange vulnerability inevitable? Could developed countries outside the US burst into the game and renew everyone’s vitality?

I think this could be the chance that the non-US markets have needed. A chance to prove themselves, when the star (US) goes down. They need to step up and work together to keep the ball moving and score.

Consider market psychology and how powerful the herd mentality can be. Look at your favorite stock positions. You most likely see a drop-off around May 10. This price precipice can be attributed largely to inflation scares. But there’s more to psychology than a lemming-style flock to the edge.

There’s confidence.


In for the Win?

In the past few days, we’ve seen traders claw up from the dungeons of June 13. Is this because they considered themselves down and out? Obviously not. Whether it was bargain-hunting hedge fund managers or a backtracking Bernanke biting his nails over sending stocks spiraling downwards, the trading floor got its juice back.

Market logic, if universally applicable, can be equally bullish or bearish in all countries. Japan’s Nikkei recently suffered its worst plunge since the day after 9/11.

The past few days have seen the Japanese benchmark index edge up, but with the same tentative characteristics as the stateside recovery.

Today, the Bank of Japan governor signaled that interest rates would rise again. After early this year, the country was officially declared to have vanquished its recession and lending rates got a belt on, any increase will elicit groans. Sound familiar? This is the exact process that’s taken place in the States.

But the New York markets are faring better today than Tokyo’s. Is New York more sanguine, or do these things just run in waves, threatening lag just as much as time zones and tectonic movements?

Europe and Japan are currently enjoying domestically-driven expansion, as is China. None of these countries should go it alone or think that it alone can prop up the world’s economy. But like different legs — on a poker table — they can keep the chips from falling off, should the US wobble and weaken.

Exposure to a diversity of market scenarios means that you have more exposure in the dangerous, hypothermic sense but also in the best meaning, as the ebbs and floes of various indices balance with time.

But playing those swings is where the money is, as many Gulf millionaires will tell you.

Today, Merrill Lynch released its tally of world millionaires, who now total 8.7 million!

The survey found that many of these millionaires’ millions were made in emerging markets, like Saudi Arabia’s and the United Arab Emirates’ where investors soaked up 100% returns in 2005. But then the tide yanked back, and 50% of those profits fell away after the New Year.

65% of millionaires are putting their lucre in markets outside their own countries. And almost a third choose to become homeowners away from home.

As a new generation gets its hands on this money, with increasing time abroad and exposure to sophisticated financial instruments for protecting and accruing wealth, these millionaires will surely grow their ranks. Money managers predict that 80% of the heirs to the current round of seven-figure lords and ladies will increase their investments internationally.


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Remember to Stretch…

As international finance institutions and good ol’ peer-pressure do their work to encourage more countries to establish manifold means of trading and boosting their own fortunes, the picture will remain risky. It takes time to establish stable markets and keep them running efficiently, especially in areas where corruption has been the historical rule and not the exception.

But the tendency and the attraction nudge even the most resistant regimes towards transparency, sound (but non-prohibitive) regulatory measures and standards to increase liquidity and make trading floors worldwide buzz with the same erratic fervor as Wall Street.

It’s high time for some new players in the game.

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