Safety in Emerging Markets?

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Published on Thursday, 06 September 2012 14:28

Written by Sara Nunnally, Editor, Inside Investing Daily

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We are in turbulent times. Emerging markets offer great opportunities, but how can we safely invest overseas?

The world is going to hell in a handbasket.

The European Central Bank is layering on another slab of debt, Clint Eastwood is talking to chairs, and the Russians are buying up multimillion-dollar homes in New York and Florida.

From Forbes:

Russian billionaires have been making headlines for snapping up some of the most opulent homes in the United States. Yuri Milner "overpaid" by 100% on a $100 million Silicon Valley mansion in 2011. Dmitry Rybolovlev's daughter bought an $88 million penthouse in New York City (after spending $100 million on Donald Trump's Palm Beach palace in 2008). This month, an anonymous Russian buyer plunked down $47 million in Miami's most expensive sale ever.

After all these economic woes, folks still think of buying real estate in the U.S. as a way to show off or get rich -- or both.

Indeed, it's not only the Russians buying up expensive homes. Folks from all over the world are snapping up all kinds of property. Koreans and Latinos are buying up rental units, and the French are looking for cheap waterfront property.

Hey, that's one commodity we do have in abundance.

Of all the countries in the world, the U.S. ranks 26th in migration -- people coming to live here. We're still the place to be, or to aspire to being, despite our political conflicts and economic uncertainty.

With the elections, we are in the ideological fight of the century. But I'll tell you, the economy doesn't care who wins in November.

There will still be a lot of work to do, and neither platform is going to get us where we need to be. We are now in a self-fulfilling prophecy in which debt needs to unwind before we see any kind of solid economic prosperity.

The best thing we can do is to let it happen, without making it worse.

It's going to be a very long haul, and we, as investors, are going to be on very shaky ground. We're going to have to know how to keep our money safe and where to invest in the meantime... Because money on the sidelines is dead money.

Inflation could wipe out "mattress cash" values faster than you know.

We need to invest in growth markets of all types. New technologies here in the U.S., consumer demand growth in highly populous nations and even emerging markets that have weathered the economic crisis with panache and have come out stronger on the other side.

You'd be surprised at how important these markets are to the global economy.

Last year, when ranked by real GDP growth, all of the BRIC countries and every last nation in the "Next 11" placed above developed economies like the U.S. and the U.K.

And get this... Over the past five years, in 11 of these 16 growth markets, equities performed better than the United States stock market.

Now, I'm not suggesting that investors move all their money offshore. Far from it.

Many times, it's much safer to invest in big U.S. or international companies expanding their businesses into growth markets. Companies like Starbucks (SBUX:NASDAQ) or Unilever plc (UL:NYSE) are pushing into growth markets like India, Indonesia, Colombia, South Africa, Turkey, the Philippines, Vietnam and even Peru!

For Unilever, the top 10 emerging markets where its brands have a presence equal about 35% of the company's sales. That's nothing to sneer at.

And take a look at this:

View larger chart

As 1 billion more consumers grow into the global middle class over the next eight years, companies have more markets to tap than ever.

And investors can easily come along for the ride. Instead of figuring out how to invest in Bangladesh (with the sixth-highest real GDP growth rate in the world in 2011), they can look to Unilever, the company that sells the top brands in hair care, laundry detergent, skin and face cleansers and other personal care products.

Make no mistake... The world economy is in for a huge shake-up. Top markets of the past might not be the best markets of the future.

Choose your investments wisely.

Happy Investing,

Sara

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