Emerging Markets
By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Markets Report
For investors looking for the highest potential return on their equity investments, the key word has to be growth. A growing economy produces more wealth, which spurs higher consumption, which stimulates increased production of goods and services. And the hottest economies in the world right now are not those of the U.S., Western Europe, or Japan. If you want double-digit economic growth, you need to look at China, India, and a handful of other countries that make up the emerging markets.
The emerging markets (the term was coined in 1981 by an official at the World Bank) are those in which per capita income is in the low to middle range. Countries are said to be emerging when they are actively developing and opening up their economies, instituting currency reform, eliminating protective regulations, and encouraging transparency and accountability in corporate governance. Emerging or developing countries currently make up about 20% of the global economy, but contain about 80% of the world's population.
Emerging market stocks have the potential for both higher rewards and higher risks than those of developed markets. But with all the warnings out of the way, growth rates in emerging markets in or near double figures will produce opportunities for growth investors that can't easily be matched in the developed world. And we are discovering new candidates every week as more and more emerging market stocks come public on Western exchanges.
The BRIC countries
The Cabot China & Emerging Markets Report looks for promising companies benefiting from the rapid growth in the economies of the BRIC (Brazil, Russia, India and China) countries. These firms may be headquartered overseas, but they can also be from America, Europe or any other part of the world. What they must have in common is a large part of their growth must be the result of the BRIC countries' growth and their stock must trade on a U.S. exchange.
But it’s not enough just to buy companies benefiting from their countries' growth. Companies featured in the Cabot China & Emerging Markets Report also meet our strict criteria regarding fundamentals and technicals. Our recommended companies have healthy balance sheets and show solid growth.
Most important of all, the stocks of our companies are in solid up-trends. This is because stocks tend to trade on what the future holds. If a stock is exhibiting strength, it’s an indication that business will continue to be healthy for the company.
Once the Cabot China & Emerging Markets Report owns a stock, it will be held for as long as the stock performs well. Our goal is to hold stocks for the long-term. But we let the stocks tell us when they should be sold. This is accomplished by paying close attention to chart patterns. Is the stock in a solid uptrend? Does trading volume show accumulation? Are corrections brief and shallow? We judge a stock’s health using traditional technical analysis tools (trendlines, support/resistance, etc.), relative performance and volume analysis. In the event a loss develops, it will be limited to no more than 20% at the close of any trading day.
Market timing
That’s where market timing comes in. Our goal is to get you heavily invested in this great new growth area while the market is trending higher. During those times, when investor perceptions are improving, investors are willing to pay more and more for stocks. This is when you can make big money!
But, of course, no market moves in one direction forever. So, when the intermediate-term trend of emerging markets-related stocks is down, your best move is to play a little defense. Easing up on new purchases, while building up cash by selling your weakest stocks, is generally a good idea.
Information on Cabot China & Emerging Markets Report
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