If you are an Investor in the developed markets, what should your strategy for investing be? Well here is an attempt to tell them what to do:

1. The share of the Emerging Markets in the World Economy is increasing, and increasing at a fast rate. It is therefore imperative for investors in the developed markets to increase their exposure to Emerging Markets or the Developing world. This is best done by indexing the countries that they wish to take exposure to or invest in a Emerging Market fund. So if you were once told that the exposure to EM should be 10%, think again. As the share of the EM in the world GDP keeps increasing, so should your exposure to those investment markets.

2. Remember if you are not investing in foreign markets, you are missing the growth which is happening there! That would be sad, because there is no growth visible in Europe or the USA – at least not much! The growth in US is around 1-1.2% p.a. and at best it is not creating more jobs.

3. Exit US treasuries – the inflation rate will surely be greater than the current yields. So get into higher yielding corporate bonds instead of US treasuries. If you still wish to be in US Treasuries, it may be worthwhile being in TIPS rather than in G-Secs of US. Investing in China, Australia and Indian paper – even in debt paper (rising interest rate scenario??) is worthwhile.

4. If you are investing in foreign markets, and the investments are in excess of US $ 1 million or above, get some hedge against the currency, maybe a small amount. Please remember if your investments are in companies like Pepsi, Coke, McDonalds, Microsoft, etc. – there is already a natural hedge that they have – income in foreign currency. To that extent they have an edge!

5. BE ready for a bigger problem in Europe. All the problems are now being just pushed under the carpet…one day when it comes out, there will be a big mess.

6. If China slows down, commodity prices will take a tumble – and be ready for p/e ratios correcting in Australia. BRIC is a good word, but each part of BRIC has a different problem. Inflation is common to all of them – so be aware of their currencies too.

 

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