Why These Particular Markets Will Be More Attractive to Investors in 2014
By John Whitefoot for Daily Gains Letter |
The U.S. stock market rally has been on a solid run this year, thanks in large part to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy—well, that and some solid economic indicators. But the question remains: will the momentum continue into 2014?
It all depends on whether or not the U.S. stock market rally follows the laws of physics. For example, when it comes to momentum, an object will continue unless force is applied against it, either a huge amount of force all at once or an applied force over a given period of time. On the other hand, the more momentum something has, the harder it is to stop.
The fuel that has helped propel the U.S. stock market rally over the last number of years could be flickering out. Thanks to better-than-expected employment and retail numbers and strong preliminary gross domestic product (GDP) numbers, many think the Federal Reserve will start to taper its quantitative easing strategy sooner than later.
The end of easy money, some think, could put a cramp in the stock market’s four-year-plus rally—or at least make it run a little more slowly in 2014 than it did in 2013. Whereas the S&P 500 is up roughly 25% year-to-date, analysts think it will grow by as little as six percent and as much as 11% in 2014. This means that the S&P 500 will experience another year of record-highs in 2014, but not quite as bullish as 2013. (Source: “Here’s What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014,” Business Insider web site, December 13, 2013.)
Those looking to outpace the U.S. stock market rally might want to diversify their portfolios with a more global bent. The first reason for this is because there are a lot of excellent companies out there trading on different international stock markets at this time. Plus, it doesn’t make sense to miss out on a global stock market rally that outpaces America’s stock market rally just because of a bias toward Wall Street.
Diversifying globally can also help reduce your risk or vulnerability should the U.S. stock market rally run out of fuel or experience some sort of turmoil. There are a lot of excellent companies from emerging markets that can and do stand on their own two feet when it comes to revenues and earnings.
And when you factor in the number of global economies that are expanding and the number of central banks that are going to continue to inject their own quantitative easing, you’ll discover there are more and more reasons to explore international stock markets and exchange-traded funds (ETFs).
Those who think Germany and France will continue to help propel Europe’s recovery may want to look at the Vanguard FTSE Europe ETF (NYSEArca/VGK). Some of this ETF’s top holdings include Nestle S.A., Royal Dutch Shell plc, Roche Holding AG, Novartis AG, BP p.l.c., and GlaxoSmithKline plc.
Many think emerging markets will have continued momentum in 2014. Compared to the S&P 500’s six-percent gain, Asian stocks are predicted to climb 13% in 2014, led by China’s Shanghai composite index. While 2013 was unkind to Latin American stocks, 2014 could be a different matter altogether. Stocks are forecast to gain, on average, 11%—with Brazil’s Bovespa index leading the way with an 18% gain. (Source: “Steadier gains expected for world stocks in 2014 – Reuters poll,” Reuters, December 13, 2013.)
Those looking for exposure to the emerging markets could research the Vanguard FTSE Emerging Markets ETF (NYSEArca/VWO). This ETF’s holdings include Petroleo Brasileiro S.A., China Construction Bank Corporation, China Mobile Limited, and Taiwan Semiconductor Manufacturing Company Limited.
Tags: central banks, China, economic indicators, emerging markets, ETFs, Federal Reserve, GDP, quantitative easing, S&P 500, stock market, stock market rally, Wall Street
