Why 2014 is Beginning Slowly for Emerging Markets

Chinese Flag in Shape of China

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_010814

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.

FXI_010814

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.

SPY_010814

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.

Exclusive  Why Small Caps are the Best Investment

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.

Exclusive  Eagle Eye Opener: China’s Services’ PMI Drops to Lowest Score in 20 Months; Far East Markets Strengthen

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.

Exclusive  These were July's Top 10 Exchange-Traded Funds

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 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.

Like This Article?
Now Get Doug's FREE Special Report:
The New Gold Rush of 2016-2017

With gold already up 20% in 2016, one of the best market timers in the business sees even bigger things ahead. His free special report will show you how to play the coming “gold rush” for serious profits.

Get Access to the Report, 100% FREE


img
previous article

Emerging-market stocks rose for the first time this year after the International Monetary Fund announced today that it will boost its forecast for world economic growth.

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen publishes 4 different investment newsletter advisories, including the award-winning Forecasts & Strategies, which has beaten the market over the last 15 years.

Product Details

  • Forecasts & Strategies
  • Skousen High Income Alert
  • Fast Money Alert
  • Five Star Trader
About Mark Skousen

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays. Bryan's four newsletter and trading services include:

Product Details

  • Cash Machine
  • Premium Income (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Instant Income Trader
About Bryan Perry

Nicholas Vardy

A Stanford and Harvard Law graduate, Nicholas Vardy scours over 40 different global markets every day to uncover new profit opportunities for subscribers. His 3 advisories and trading services include:

Product Details

  • The Alpha Investor Letter
  • Bull Market Alert
  • Alpha Algorithm
About Nicholas Vardy

Doug Fabian

A 30-year Wall Street veteran and famed market timer, Doug Fabian is one the nation's foremost experts on ETFs (Exchange Traded Funds). His two ETF-focused advisories include:

Product Details

  • Successful ETF Investing
  • ETF Trader's Edge
About Doug Fabian

Bob Carlson

In Bob's monthly newsletter, Retirement Watch, he provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

ABOUT BOB CARLSON

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research. Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

Product Details

ABOUT DIVIDENDINVESTOR.COM