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I’m just back from Asia with visits to Thailand, Singapore, Manila and Sydney. And I’ll get right to the bottom line: I have no doubt in my mind whatsoever that overseas economies will continue to explode higher.
However, my on-the-ground experience from this trip also tells me that even Asian economies could hit some headwinds over the next few months.
I attribute this to three forces …
Force #1: The disaster in the U.S. mortgage markets.
It’s bad. As much as $1.4 TRILLION of mortgages in the U.S. are at risk of default, or at best, falling into late payment status.
Already, two Bear Stearns hedge funds that invested heavily in mortgages have been wiped out. And at least two overseas funds, plus Macquarie Bank in Australia, have taken some big hits on U.S. real estate and mortgage investments.
But it’s not the dollar amount of the damage overseas that I see as the problem. Foreign economies do not have big exposure to our crumbling mortgage markets.
Rather, it’s the psychological toll that has me worried.
It didn’t matter where I went … nearly everyone I talked to was worried about the U.S. mortgage market disaster. And when investors are jittery, they tuck their heads into their shells.
On its own, this nervousness is not enough for me to throw up the caution flags. But I also see some evidence that …
Force #2: The dollar’s weakness is beginning to affect Asia’s export markets.
Already, one of Thailand’s largest employers — Thai Silp South East Asia Import Export Co. — shuttered its doors and laid off more than 5,000 employees because the falling dollar made their exports uncompetitive in world markets.
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| Even Australia-based Macquarie Bank’s executives are worrying about U.S. subprime mortgage woes. |
And in Singapore, electronics manufacturers are also starting to feel the pinch of the weak dollar. For example, Creative Technology and Chartered Semiconductor are starting to see their sales and earnings slump.
The problems seem to be contained to the weaker companies in Asia. And longer-term, even though I expect the dollar to fall more, I don’t think Asia’s vibrant export markets will suffer all that much.
Still, there’s no discounting the fact that this could be a short-term negative for Asian economies.
Force #3: Beijing is clamping down hard on speculation.
So far, China’s government has been totally unable to ferret out the speculation going on in the country’s stock markets. Beijing has raised interest rates five times since April 2006. It’s also upped bank reserve ratios eight times since June 2006, with the most recent increase taking effect yesterday.
None of that has put a lid on the country’s markets yet. Indeed, it’s pretty tough to cool things down when you have 1.3 billion people coming onto the world stage and wanting to get rich.
Nevertheless, my sources in Asia tell me Beijing is determined to snuff out some of the excess in the markets there. I think another interest rate hike and another hike in the bank reserve requirement are coming.
Plus, my charts tell me the markets in Asia have gotten too far ahead of themselves.
Bottom line: I believe China’s stock markets could see some air escape over the short-term. I would not be surprised to see the Shanghai A and B indexes fall 10% or 12%.
So What Can You Do?
Take Some More Profits NOW!
To be clear, in no way does this suggestion indicate that the long-term bull market in Asian economies or natural resources is over. Hardly! Much higher price levels are coming across the board.
But given the three short-term forces I just laid out for you — AND the indisputable fact that a major correction is already underway in U.S. stock markets — I think it’s time to take some more profits off the table.
In my July 5 Money and Markets column, I gave you an update on some of the names I’ve mentioned in the past. And I suggested unloading a few — XTO Energy (XTO), Cimarex Energy (XEC), the AIM Energy Fund (IEFCX), and the Dow Jones U.S. Energy ETF (IYE) — if you were holding them.
Today I’d like to give you an updated list (capital appreciation through the end of trading on August 13) …
|
Investment Name |
Ticker |
Mention Date |
Gain/Loss |
|
Oil Service HOLDRS Trust |
OIH |
09/19/05 |
38.8% |
|
StreetTracks Gold Trust |
GLD |
09/19/05 |
43.3% |
|
Tocqueville Gold Fund |
TGLDX |
10/10/05 |
36.5% |
|
Energy Select Sector SPDR |
XLE |
10/10/05 |
39.0% |
|
Vanguard Energy VIPERs |
VDE |
10/10/05 |
39.4% |
|
iShares S&P Global Energy |
IXC |
10/10/05 |
32.6% |
|
Powershares WilderHill |
PBW |
10/10/05 |
34.1% |
|
US Global Investors World |
UNWPX |
10/10/05 |
53.7% |
|
DWS Gold & Precious Fund |
SCGDX |
02/23/06 |
-3.9% |
|
Sadia SA |
SDA |
06/08/06 |
73.1% |
|
Archer-Daniels-Midland |
ADM |
06/08/06 |
-15.3% |
|
Cresud SA |
CRESY |
06/08/06 |
54.1% |
|
Enerplus Resources Fund |
ERF |
08/10/06 |
-24.9% |
|
U.S. Global Investors |
PSPFX |
08/10/06 |
-1.1% |
|
Profund Ultrasector |
ENPIX |
08/10/06 |
23.7% |
|
Matthews India Fund |
MINDX |
09/28/06 |
36.3% |
|
Data Date: 8/13/07 |
Now, if you’re holding any of these investments, your results will vary based on when you bought and the fees your broker charges you. I also mentioned some of these more than once. But as you can see, a lot of them have posted solid gains.
So, I suggest grabbing any profits you have on Sadia (SDA), Cresud (CRESY), and the Matthews India Fund (MINDX). You might want to look at the rest of your holdings to see if there are any other positions you can scale back on.
Regularly taking profits like this is just good money management. It allows you to lighten up your portfolio a tad … and it reduces your downside risk.
But I repeat: Do not take this as a sign that the bull markets in Asia and natural resources are over … they’re not even close to an end.
In fact, I remain firmly convinced that the long-term uptrends for most developing economies — China, India, Brazil and more — have much farther to go. Ditto for natural resource prices!
Best wishes for your health and wealth,
Larry
P.S. If you’re interested in getting all of my recommendations as soon as I release them (including flash alerts), plus 12 monthly hard-hitting issues of Real Wealth Report that will keep you fully informed on the natural resource and international markets, subscribe now for just $99 a year.
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, and Julie Trudeau.
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