I talk with a variety of investors on a dailybasis . I truly
enjoy the interactions as I often learn something new. In
addition, the conversations provide a real-time feel for the
day's investor sentiment.
One recent conversation with a seasonedstock investor from the
West Coast was particularly revealing. As we talked about my
recent article on Ray Dalio, the famoushedge fund manager , this
investor could not understand how Dalio could be diversified
across such a large number of uncorrelatedinvestments . He
insisted that most all domesticstocks , commodities and
currencies are correlated to some degree.
While I don't completely disagree with this thought, my first
reaction was that his thinking was very single-minded. I asked
him if he ever considered frontier oremerging markets as a way to
diversify. "No way!" he exclaimed. "That's too much
I replied, "That's a sure way togain generally
uncorrelateddiversification from the U.S. stockmarket ." He
mumbled something and went on his way.
This conversation taught me that many stock investors, even
very experienced ones, refuse to look outside their comfort zone
for investments. Not only are uncorrelated investments for
diversification purposes found in non-U.S.-based stocks,
hugeprofit potential also exists in these emerging markets.
Today's investors shouldopen their minds to different global
stock markets as a means to find the best opportunities.
Fortunately, the popularity of exchange-tradedfunds (ETFs ) makes
it easy for stock investors to gain exposure to new markets.
I find India to be the most compelling emerging market for
stock investors. Indian stocks are sharply lower with the Sensex
down over 1,000 points in August alone and the Nifty 50index off
by 8% in the same time. Not only have stocks plunged,
India'sfiscal deficit ,inflation , and weak growth projections
have sent the rupee, India'scurrency , to a new recent lowtick of
68.75. In addition, fears of military escalation in Syrian have
added another layer of fear over India's already
beaten-downfinancial markets .
Theseissues are exactly why I find Indian stocks tooffer an
ideal opportunity right now for savvy investors.Money is made
buying low and selling high in the stock market, and now is when
to buy India at a sharp discount.
The Indian government has recognized the problems within
theeconomy and has vowed to do everything tosupport it.Prime
Minister Manmohan Singh has said: "Wewill leave no stone unturned
to ensure that the economy rebounds." He added that the
government will remain proactive to promote growth. Finally,
channeling a true free market capitalist, Singh said, "When
things are going well, the government should interfere as little
As we have seen in the United States, central banks are
powerful tools for economic stimulus. Based on Singh's words, I
think the bottom is either very close for India's economy or
already at hand.Bearish forces simply cannot resistbullish
governmental action for very long. In addition, Syrian tensions
are weakening currently providing footing for Europeanshares ,
and this bullishness should follow through to emerging markets.
Theratings agency Fitch recently affirmed that India is not in
danger of acredit downgrade but India is presently rated at the
lowestinvestment grade of BBB-. However, if Singh does not follow
through with his words, the nation could be downgraded.
Due to the economic difficulty, investors have punished the
iPath MSCI India ETN (
. Just over the last month, investors have dumped over $37
million from the exchange-tradednote . In addition, netfund
outflows from India hit $300 million in August. This sharp
selling and bounce from the lows is why I like this ETN. Buying
on the first signs of a bounce, after everyone else has thrown in
the towel, is a proveninvestment method.
Let's take a closer look at this ETN, which comprises the
largest 68 companies traded on the Nation Stock Exchange of
India. It's part of the Barclays fund family and boasts assets of
just over $370 million. Itsexpense ratio is 0.89%, and the annual
turnover is zero.
Technically, shares have finally hit support at $42 and have
bounced to the $45 level, setting up a potential breakout buy
Risks to Consider:
Despite my confidence, India remains a very risky economy.
Some experts believe that things are so bad that even massive
government intervention will not bring back growth. This
investment is only suitable for investors who understand the high
level of risk involved. Always use stops and diversify
Action to Take -->
I like the iPath MSCI India ETN as a channel entry strategy. This
means I will buy on a retrace to $42 or on a breakout above $46.
If the retrace entry is triggered, stops should be at $39. The
breakout entry will require the stop level to be at $44. My
12-month target is $53.