These Markets Are The Place To Be

  • October 10, 2003
  • Mark Boucher

As we discussed last
week, a major sea change in G-7 currency policy has been
announced and it is shifting where favored assets are and what are the safest
ways to play them.

China and many Asian countries are being pushed, in some tightening
of policy on currencies and interest rates. Single country plays in Asia (absent
perhaps India) are becoming more risky. However Asia-regional mutual funds or
iShares still offer strong opportunity.

As commodities pick up, Latin
American Emerging Markets start to shine. Chile has been outperforming
for some time now, so we recommend shifting towards general Latin region funds
and iShares for broad exposure to this explosive market. Just as emerging markets
have outperformed on the upside of recent bull move in the market, they will
likely lead on the downside, should any prolonged market correction take place.
We like FLACX (Fidelity Latin America Fund), ILF (iShares Latin America), EWZ
(iShares Brazil), and SLAFX (Scudder Latin America Fund).

Russia has been making mega-deals with the US to develop its
oil capacity, but here too, the Eastern European
regional funds and iShares seem to offer better risk-adjusted
returns and benefits from overtight policy in Poland and growth in the entire
Eastern European region. Here, we like RNE (Morgan Stanley Eastern Europe Fund),
TREMX (T Rowe Price Emerging Europe and Mediterranean Fund), EUROX (US Global
Accolade Funds Regent Eastern European Fund, and CEE (Central European Equity
Fund).

China may be tightening
slightly, but certainly not enough to stem the incredible growth it is fueling.
In this recovery, it is China that is the engine of global growth, not the US,
which is befitting of the century that will probably belong to China and Asia.
Since China is the main engine of growth, resource plays are doing particularly
well, and industrials and industrial commodity stocks are doing well.

Small caps are also substantially outperforming globally, as
one would expect in a phase of accelerating growth. Small-cap
Japan, for example, didn’t
feel a ripple from the currency volatility experienced in the major Japanese
indexes. As we have been suggesting all year, Emerging Markets are the place
to be—