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With the Middle East roiled by civil unrest and Japan gripped by a nuclear crisis, it's easy for investors to cross the fine line between concern and hysteria. But this is hardly the time for investors to duck and cover. The abundance of investment opportunities makes it possible to profit from adversity. We recently spoke with Kevin Mahn, chief investment officer at wealth management firm Hennion and Walsh, about how to benefit from the turmoil in the Middle East and Japan.

Riots continue to spread across the Middle East and North Africa. The US now leads a coalition of nations bombing military targets in Libya. Meanwhile, a Japanese nuclear reactor may be on the verge of a meltdown. What are the implications of these events for US investors?

We live in an interconnected global society. Although this can lead to extreme volatility in global capital markets, this interconnectedness offers tremendous opportunities.

Investors should focus less on picking the next hot technology stock and consider the root causes of the uprisings in the Middle East. Tunisia and Egypt both faced food price inflation and unemployment rates of about 30 percent, two factors that led the countries' younger citizens to revolt.

How can we invest in food price inflation? Wheat prices recently hit an all-time high and PowerShares DB Agriculture ( DBA ), an exchange-traded fund ( ETF ), allows people to invest in agricultural commodities without playing the futures market or understanding how soybeans are priced.

My research team and I often joke that wars and earthquakes can help struggling economies. Japan has just experienced an earthquake. We like economic growth but hope additional wars aren't in the cards. Japan is going to have to rebuild, which will put tremendous strain on steel and copper prices.

But there's an opportunity for investors to play those themes via ETFs. Frontier countries in the Pacific Rim will also likely benefit from renewed economic activity in the region.

There are ample opportunities for investors to benefit from these trends. They just have to take off their blinders and consider investing in asset classes and sectors that they'd previously avoided.

What other factors contributed to the social unrest in the Middle East?

Middle Eastern countries have made significant efforts to build up their educational systems, but the jobs haven't followed. Over 30 percent of the Libyan population is unemployed. If the population doesn't have money and is facing rising commodity prices, how will they afford even basic necessities?

The planet's natural resources are fixed, yet demand continues to grow as the global population expands. This is not a problem that will be solved overnight, but it does open up investment opportunities. As the world searches for alternative sources of energy and food to fuel these growing economies, investors can still benefit from that fundamental tension between supply and demand.

Given the high levels of education in the Middle East, how would you characterize the risk that new theocracies will emerge in the region?

The citizens of these countries just want to have a voice, a job and a higher quality of life. I don't think we're at the point that extremist governments could rise to power, but the unrest could certainly lead to that outcome.

This is especially true in Libya, where an entrenched government refuses to relinquish control and will inflict pain upon the country on the way out. That could lead to escalating violence in Libya and neighboring countries.

That's the real contagion risk to the violence in Libya.

But it's an encouraging sign that the Egyptians are moving forward with elections, although events in that country might be moving too quickly. No one wants to see Egyptians worse off than they were under the Mubarak regime because they rushed their reforms.

Egyptians have an opportunity to redefine not only their economy but what it means to be an Egyptian citizen.

We hope they take the time to allow their citizens to voice their concerns and hold proper elections. If this is done in a deliberate fashion, then the people will stand by their newly elected officials rather than riot again because they don't like the results.

Nonetheless, although it appears that they may be moving too quickly toward elections, it's better than inaction. It's an encouraging situation.

There's a concern in the markets that Saudi Arabia may not be able to increase production enough to meet global oil demand. Could the US run short of oil?

The US actually supplies about half of the oil that it consumes each day. The US is heavily dependent on the Middle East and, to a lesser extent, Latin America and Russia for oil. But it's not a dire situation.

However, Saudi Arabia is a major global supplier of oil, so unrest in the country could result in disruptions to supply and send oil prices through the roof.

But I'm not worried about a shortage of crude oil. There are many other oil-rich countries that can step in to fill the gap.However, it must be noted that not all of the world's powers are exactly cooperative in that regard.

Will this revolutionary fervor will spread to other countries such as China?

This unrest will be isolated to the Middle East. China is such a large country and must contend with a host of other issues and problems. China's middle class has over 300 million people, which is greater than the entire US population.

We used say that China has a tremendous amount of people but a very poor society, and elements of that imbalance survive. But their middle and upper classes are growing and the economy is still thriving.

The question is whether those people who haven't entered the middle class will start to demonstrate against their government. I think that's unlikely at this time.

What threat does the nuclear crisis in Japan pose to the long-term growth of the global nuclear power industry?

It would take decades to unwind all the work that's been done with respect to nuclear energy. Accidents are a reality for the industry. But approximately 30 percent of global electricity is already generated by nuclear energy. Abandoning nuclear energy isn't an option.

The events in Japan serve as a reminder that we must make nuclear energy safer while searching for alternative sources of energy. An isolated incident in the wake of one of the largest earthquakes in the last 100 years shouldn't lead us to abandon nuclear energy.

Along these lines, the oil spill in the Gulf of Mexico shouldn't impact our ability to drill for oil in the deepwater; instead it should drive us to make offshore drilling safer and more efficient.

Western investors should also recognize that the Japanese economy has growth potential. New sectors could usher in the next phase of growth and development for the country's economy.

But rather than attempting to identify these emerging sectors or understand local companies, investors might choose an ETF that tracks the Japanese yen or the overall Japanese market. Those investments would be smart ways to play the recovery.

What's your outlook for global markets?

The S&P 500 will finish the year with a gain of between 6 and 10 percent. Developed international markets will lag the US market. Emerging markets could outperform. The entire spectrum of commodities will continue to do well. Bonds will be a safe haven and the first choice for investors that live off of their portfolio's income.

But investors should brace for volatility. There is the potential of market pullbacks of 2 to 4 percent over the next nine months.

What's your best piece of advice for investors?

Take off the blinders and avail yourself of new asset classes and sectors. We aren't out of the woods yet with respect to the Great Recession. US unemployment is close to 9 percent, the real estate market is struggling and consumer spending remains a long way from a full recovery.

There will be bumps in the road in foreign and domestic markets. Investors must diversify their portfolios to ride out these periods of uncertainty and unrest.

Investors should build flexibility into their portfolios to prepare for potential shocks such as what we've seen in Japan. This flexibility can allow investors to shift capital into commodities or foreign currencies, or make investments in emerging and frontier markets.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Article Republished with permission from <a href="http://www.KCIinvesting.com" rel="nofollow">www.KCIinvesting.com</a> and <a href="http://www.rukeyser.com" rel="nofollow">www.rukeyser.com</a>


This article appears in: Investing , Stocks

Referenced Stocks: DBA , ETF

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