Something to think about
I believe the Fed to be in a true catch 22 - stuck between not being able to raise rates, which would very likely crash markets further, and the inability to maintain accommodative monetary policy, which could fan the flames of inflation.
The inflation is the key here. In years past, the Fed never had to face the consequences of its QE. In fact, it was able to parade around suggesting QE was this perfect mechanism for getting the markets to do whatever the Central Banks wanted specifically because it didn’t cause any inflation. As a result, U.S. markets continue to be brutally volatile, swinging from getting absolutely spanked to ripping 5% higher for no reason.
Overseas and emerging markets are worlds cheaper than U.S. markets and especially with the dollar’s dominance coming under risk. So people are buying the $iShares MSCI Hong Kong ETF(EWH.US$, $iShares MSCI Japan ETF(EWJ.US$ and the $iShares MSCI Emerging Markets ETF(EEM.US$. All three have sidestepped the carnage in the U.S. to a degree over the last month, as one-time growth investors start to look for exactly the type of value and dollar safe haven these ETFs provide.
While the U.S. ETFs crashed as much as 11% over the last month, geographical ETFs like the EWH were up 5.5%. The EEM returned 0.57% in the last month, outperforming the NASDAQ ETF by almost 12%. Some investors are expecting a reversion to the mean, which has happened in the past (i.e. emerging markets move higher, U.S. stocks move lower).
The main risk in buying Hong Kong stocks are:
Lack of innovation and diversification of the economy
Exposure to slowdown in mainland China
Mismatch between business cycles in the United States and China, as the HKD is pegged to the USD
Real estate sector risks and housing affordability
Rising income inequality and social discontent
Industry has fully relocated to mainland China
If we really are headed for a tough year and a broad re-valuation of stocks, things look as though they can sure get a lot worse.A lot is going to depend on whether or not the Fed pivots or postures heading into the end of January. If the market catches wind that Powell could lay off the gas, stocks will rip. If the Fed holds its hawkish stance, it’s look out below.But either way - even if U.S. stocks rally, they should take global markets with them and these ETFs may also appreciate in such a case. On the downside, they may couch the blow a little if U.S. stocks continue to plunge.
The inflation is the key here. In years past, the Fed never had to face the consequences of its QE. In fact, it was able to parade around suggesting QE was this perfect mechanism for getting the markets to do whatever the Central Banks wanted specifically because it didn’t cause any inflation. As a result, U.S. markets continue to be brutally volatile, swinging from getting absolutely spanked to ripping 5% higher for no reason.
Overseas and emerging markets are worlds cheaper than U.S. markets and especially with the dollar’s dominance coming under risk. So people are buying the $iShares MSCI Hong Kong ETF(EWH.US$, $iShares MSCI Japan ETF(EWJ.US$ and the $iShares MSCI Emerging Markets ETF(EEM.US$. All three have sidestepped the carnage in the U.S. to a degree over the last month, as one-time growth investors start to look for exactly the type of value and dollar safe haven these ETFs provide.
While the U.S. ETFs crashed as much as 11% over the last month, geographical ETFs like the EWH were up 5.5%. The EEM returned 0.57% in the last month, outperforming the NASDAQ ETF by almost 12%. Some investors are expecting a reversion to the mean, which has happened in the past (i.e. emerging markets move higher, U.S. stocks move lower).
The main risk in buying Hong Kong stocks are:
Lack of innovation and diversification of the economy
Exposure to slowdown in mainland China
Mismatch between business cycles in the United States and China, as the HKD is pegged to the USD
Real estate sector risks and housing affordability
Rising income inequality and social discontent
Industry has fully relocated to mainland China
If we really are headed for a tough year and a broad re-valuation of stocks, things look as though they can sure get a lot worse.A lot is going to depend on whether or not the Fed pivots or postures heading into the end of January. If the market catches wind that Powell could lay off the gas, stocks will rip. If the Fed holds its hawkish stance, it’s look out below.But either way - even if U.S. stocks rally, they should take global markets with them and these ETFs may also appreciate in such a case. On the downside, they may couch the blow a little if U.S. stocks continue to plunge.
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