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Monday, May 22nd, 2006
Filling in the World with ETFs
While my focus right now is on overseas markets, America remains a very attractive country in which to invest in.
700 of world's largest 2,000 companies are headquartered in U.S. and America has the world's deepest and broadest capital markets. America is no doubt the fastest growing economy of the large industrialized countries and has created a net 30 million new jobs over the last 20 years. During the same period, Europe has created zero net new jobs.
Our economy is flexible, dynamic and open. Looking for proof? 75% of America's top 100 firms did not even exist in 1980
But, even if you agree with me that, despite its problems, the U.S. is the greatest country in the history of world - I cannot advocate strongly enough the need for you to have a global perspective in building your portfolios.
I say this because the world is filling in and developing countries are rapidly catching up. Let's keep in mind that 200 years ago, when this country was just getting started, China was the world's largest economy. 50 years ago, the U.S. accounted for 50% of world GDP - now it is closer to 20%. By the way, this is still a very impressive number.
Europe was devastated by WWII and China and India (40% of humanity) took a wrong turn to follow the Soviet style command model becoming frozen in socialism and communism. In the 1980's, both finally began to open up to the world and pursue market reforms
And, there is no doubt that breakthroughs in communications and technology are
accelerating how quickly countries are catching up - what used to take decades now can take only a few years.
For example, there are 9 trillion emails and sent each day more than a billion google searches done each day and there are now 2 billion cell phones are now in global circulation.
To underscore and highlight the dramatic changes taking place in global economy, here are some snapshots of global trends and the related ETF investment opportunities.
- China (FXI) now has world's largest FX reserves - $854 billion
- India (IIF) is adding 25 MM citizens (the size of Canada's entire population) to the ranks of middle class each year
- US has not been the world's best stock market in 16 years
- Japan's (EWJ) bilateral trade with China greater than its trade with America
- According to KPMG the least expensive places in the world to conduct business are Canada (EWC) and Singapore (EWS)
- The Brazil (EWZ) stock market up over 100% last 12 months. The country is now energy sufficient due to use of sugarcane for ethanol production
- Taiwan (EWT) and South Korea (EWY) now export more to China than to the U.S.
- 25% of world's population 25 years and younger live in India (IIF)
- According to Barclays Capital, Asia has received $670 billion of net capital inflows since 2001
- Europe is still sitting on 40% of the world's wealth and even though its economy is flat, Germany's ETF (EWG) is up 42% during the last year.
- While GM debt relegated to junk bond status, 80% of market value of global auto makers accounted by Nissan, Toyota (TM) and Honda (HMC)
So keep the U.S. at the core of your global portfolio but open it up to overseas opportunities using low-cost and tax-efficient ETFs as your core investment tool.
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