For investors here in the U.S., finding stocks that have made you any money at all lately hasn't proven easy. Even when you expand your horizons and look around the world, finding vestiges of promising economies is a tougher assignment than training bumblebees to move furniture.
But at least so far this year, it hasn't been impossible. Despite a sea of red ink throughout most of the world, two major regions have managed to post positive returns in 2009 -- and a closer look gives a lot of reasons why that strong performance might continue.
Emerging from the ashes
The secret of positive returns lies within the on-again off-again world of the emerging-market economies. After years of huge returns in places like Brazil, Russia, India, and China (the so-called BRIC countries), investors fled from the emerging economies in the wake of financial troubles throughout the developed world.
This year, though, some of those economies have seen their stocks finally recover somewhat. Here's a sampling:
|
Country
|
Market Return YTD
|
|
China
|
20.3%
|
|
Brazil
|
0.1%
|
|
Chile
|
8.3%
|
|
Venezuela
|
14.7%
|
Source: Economist. As of March 4. YTD = year to date.
Why are investors finally starting to like the emerging markets again? To understand, you have to look beyond the current implosion in asset prices to the next economic expansion.
The long-term view
Cash is the most important resource to have when assets of nearly all kinds are cheaper than they've been in years. And cash is something that the Chinese have plenty of, in contrast to developed nations that typically carry substantial amounts of government debt. With over a trillion dollars invested in U.S. Treasury bonds, China has the financial resources to consider any number of options. Consider:
- The nearly $600 billion stimulus package that the Chinese recently announced will help its domestic economy, supporting both local farming and continuing its huge expansion in infrastructure -- an investment that could easily pay dividends for decades to come. Chinese prime minster Wen Jiabao believes China can still reach an 8% growth rate in 2009 despite the global contraction.
- Having already made investments in companies like Blackstone Group (NYSE: BX ) , Morgan Stanley (NYSE: MS ) , and Visa (NYSE: V ) , Chinese sovereign wealth funds could shift more of their investments toward stocks of U.S. companies.
- Alternatively, those funds could move toward controlling other types of cheap yet much-needed assets, such as oil. Already, another Chinese sovereign wealth fund has made investments in oil companies Total (NYSE: TOT ) and BP (NYSE: BP ) .
Any of these opportunistic moves -- or a combination of all of them -- could put China in a great position to continue to grow its economy strongly, regardless of how the rest of the world grows.
A better neighbor?
U.S. relations with China haven't always been the friendliest. For investors concerned about political risk, therefore, Brazil may appear much more appealing.
Brazil's economy benefited greatly from the boom in commodities, which boosted shares of oil giant Petrobras (NYSE: PBR ) and mining company Vale (NYSE: RIO ) . Yet while there are worries over how the commodities bust may sink the economy, Brazil has thus far held up far better than it has in previous episodes of economic unrest, when inflation and currency devaluations ran rampant.
Why else might Brazil be a better bet? As the top economy of South America, Brazil is in position to play a leadership role for the rest of the continent -- despite past difficulties it has had in doing so. So while China is hemmed in by Russia, India, and Japan -- none of which could be seen as allies -- Brazil could build stronger ties with its neighboring countries and play a crucial part in developing a lasting economic strategy for the entire region. That, in turn, could spell big opportunity -- even in a struggling world economy.
Don't stop looking
All this goes to show that even with the world economy in the doldrums, you can still find vibrant economic activity if you look for it. By keeping your eyes open to the bright spots in the world, you can make sure you'll survive the downturn -- and be ready to take advantage when the recovery comes.
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