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Contrary to popular opinion, not all stock markets are alike. Different regions and country stock markets often move to the beat of their own drummer based on all sorts of factors, from economic growth to political events and perceptions of risk. It pays overtime to take a global perspective.
One easy strategy to capture global opportunities is through a country ETF rotation portfolio. Almost every major and emerging market country you can think of has an exchange-traded fund (ETF). Here are just a few.
How to Invest in the World
New Zealand (ENZL)
United Kingdom (EWU)
Why would some of these markets be doing better than China? It’s simple: they are competitors to China.
Because of higher costs in China, production is going to other markets in the region. Trade and investment within Southeast Asian countries are also rapidly increasing. During the last decade, foreign direct investment between these countries has more than tripled. I could go on with other examples, but you get the point. The country’s markets and, in turn, the stocks you invest in makes a tremendous difference in performance.
Two Overseas Stock Markets with Value and Momentum
I have learned over time that the best strategy for picking countries to invest in is to look at the extremes of value and momentum.
On the momentum side, I would look at Taiwan (EWT), a market that is up 17% in 2021 and up 69% in the last year. At 20% of assets, this ETF’s largest holding is Taiwan Semiconductor (TSM), which is the dominant producer of high-performance microchips in the world. With a global semiconductor shortage making headlines, this stock should outperform. Many of the Taiwan ETF’s other holdings are in high tech and finance.
On the value side, despite all the corruption and political meddling in the Russian economy, its stock market, and the Russia ETF (RSX), is dirt cheap. Second, Russia, as a Pacific Rim nation, is stepping up its trade and investment outreach to countries such as China, South Korea, and Japan. In fact, over the past five years, Russia’s bilateral trade with Japan has already doubled and trade with South Korea has tripled. These trends will accelerate as the Pacific century unfolds.
In addition to an ample supply of energy resources, Russia has geography on its side. It takes only 2-4 days to get raw materials from Russia’s Asian frontier to China compared to weeks for many of its competitors. Finally, despite the bad headlines, the Russian economy is chugging along pretty well with about a 4% growth rate.
So don’t be lulled to sleep by the myth that all markets move in tandem. Be alert for the country’s opportunities showing great value or momentum.
And you can do even better by picking specific stocks. That’s what I do every week in my Cabot Explorer advisory, which aims to find the best momentum stocks in leading sectors from around the world that trade on U.S. stock exchanges.
It pays to invest globally. Reserve at least some of your portfolio for overseas stocks and ETFs like the ones mentioned above. There’s more risk, to be sure, investing in companies outside U.S. borders. But there’s also more upside – especially now that U.S. stocks are near all-time highs.