Making Money Alert: Emerging Markets off to a Bad Start

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There's only been five days of trading so far in 2014, but for emerging market equities and for China, the year has gotten off to a very bad start.

The latest declines in both the iShares MSCI Emerging Market ETF (EEM) and the iShares FTSE China 25 Index (FXI) have sent these respective indices below their long-term, 200-day moving averages. This technical development doesn’t augur well for the trend in these sectors, at least in the short term.

EEM is down nearly 5% so far in the young year and, despite a rebound in today’s trade, FXI also is down about 5%. While these sectors are dealing with a variety of different challenges, there is a common thread to the headwinds, and that thread is debt.

EEM

In the case of many emerging market nations, their cost of borrowing is going up much faster then their economies are growing. Additionally, many emerging markets are commodity producers, and the low-inflation environment we’ve seen around the world, as well as the slowdown in Europe, have led to a global decline in commodity prices. As for China, that country has its own credit crisis of sorts, as policymakers are trying to rein in credit growth and prevent any kind of runaway debt crisis.

Here at home, the bulls haven’t exactly picked up where they left off in 2013. U.S. stocks actually have started the year off with a thud, trimming a little of the gains off of those record 2013 closing highs.

Right now, there is a lot of bullish sentiment out there. By some measures, the bullish sentiment is near record highs. If the data on the employment, earnings and gross domestic product (GDP) front come in strong, then the bullish sentiment out there may be rewarded. However, if any of these primary economic readings begin to falter, it could be sell-off time for the broader equity market.

As always, the price action in stocks will tell us what we need to know about sentiment, and whether the mood out there is too bullish, or rationally supported.

So, keep a close watch on SPY for clues as to the trend in domestic stocks, and be especially vigilant when watching EEM and FXI, as these two international ETFs will give us a great read on whether the latest pullback is a buying opportunity, or a warning sign.

Get Fiscally Fit in 2014, Part I

It is the first full week of another new year, and that means now is a great time to get in better financial shape. To help you do just that, over the next few weeks I will be taking you through a series of simple assignments that will help you to get on track in 2014.

First up is something that we all need to make sure we do from time to time, and that is to conduct a personal financial inventory of all of our assets. Here we can take a page from corporate CFOs, as they regularly are tasked with determining the precise value of their company’s assets.

Determining the value of your assets by conducting a personal financial inventory simply means you need to take a very close look at how much money you actually have, and in what type of asset class that money resides (equities, bonds, real estate, gold or silver coins, checking account, CDs, etc.).

You also have to make sure that you know where, and in what type of accounts, all of your money resides. And while this may seem simple on its face, you’d be surprised to learn just how high the percentage is of investors I speak with who aren’t quite sure about where all of their money is, or in what kind of accounts (retirement or taxable) they have.

You can start this process by simply creating a list of your taxable assets, as well as your tax-deferred assets. One of the benefits of this fiscal fitness exercise will be to find out how many companies you’re currently doing business with. If that number is more than two or three, then you should consider doing some consolidating.

You also should make sure that you include any life insurance policies or variable annuities in your personal financial inventory, since they also are part of your overall investment picture. Now, in this first step, we are not concerned with the individual equity or bond positions that you own. An analysis of these positions comes later. Rather, we are more concerned with just making sure that we know how much of our net worth is in liquid assets, and how much is tied up in real estate and other non-liquid holdings.

Here is a quick, step-by-step guide to conducting an inventory of your assets.

  1. Collect all of your year-end statements as you receive them during the next several weeks, and keep them in one main file folder.
  2. Make separate lists of your taxable assets and your tax-deferred assets.
  3. Make a separate list of your life insurance and annuities.
  4. Count the total number of financial companies you do business with.
  5. Tally up all of your current debt, then determine if you can pay off any of that debt in 2014 (hint, start with the highest interest rate loans first).

Next week, we will look at the nuts and bolts of your holdings, including assessing the individual stocks, mutual funds, ETFs, etc. you might own. That way you can get a head start in determining if your investable assets are positioned for growth in 2014.

Weather Wisdom from a Literary Genius

“We may achieve climate, but weather is thrust upon us.”
--O. Henry

Given the extreme weather gripping much of the country, I thought a little wisdom on the subject from the great writer O. Henry was in order. Of course, the above quote applies to more than just the temperature. That’s because in life, we can take all of the steps we can to control our “climate,” but sometimes bad “weather” circumstances are thrust upon us that we are forced to face. How we deal with these circumstances often dictates the quality of our lives. So, the next time bad weather is thrust upon you, be strong and take charge.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, read my e-letter from last week’s Eagle Daily Investor about what you can learn from 2013′s best ETF developments. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

Best,

Doug Fabian

Doug Fabian has continued to uphold the reputation of the Successful Investing newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest.

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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.



This article appears in: Investing , ETFs , International , Investing Ideas

Referenced Stocks: EEM , FXI , SPY

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