stock market

Avoid a U.S. stock market meltdown and go global

By Jeff Reeves, MarketWatch

Last week, I listed concerns of a stock market correction in the U.S., including high valuations and a weaker-than-expected economy. Investors seemed to acknowledge those risks, as stocks drifted steadily lower on the week.

At the same time, European equities had a shock as the solvency of a major Portuguese bank was called into question. Shades of the 2011 European debt crisis spooked investors, and stocks across Europe slid.

With trouble in developed markets and yields on interest-bearing assets still paltry — and perhaps threatening to drift even lower given recent trends with the 10-year Treasury — then where is an investor to turn?

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I say go global — and start staking out a position in emerging markets. The valuations are much cheaper, the momentum is much better and there are some very attractive ETFs that allow you to play the upside potential in these volatile regions but with enough diversification to reduce your risk significantly.

Here are three such emerging market ETFs I’m watching now:

iShares MSCI Taiwan Index ETF /quotes/zigman/22355/delayed/quotes/nls/ewt EWT +0.71%

• 60-day return: 11%

• 2014 return: 13%

• Net assets: $ 3.3 billion

• Expense ratio: 0.62%, or $ 62 on every $ 10,000 invested

Many emerging market stocks and ETFs have picked up nicely since their May lows, outperforming the S&P 500 in that period. But one region that has actually outperformed all year long is Taiwan.

Stocks in the region largely sat out the 2013 rally, but momentum has picked up this year with double-digit gains in the past two months. Longer term, the iShares MSCI Taiwan Index ETF is up 13% since Jan. 1, double the profits generated by the S&P 500 in the same period.

So much for emerging markets being chronic underperformers.

Longtime commodity trader Peter Brandt recently shared a chart-heavy analysis of Asian equities, making the case for why “Asian equity markets are on the verge of explosive advances.” For those interested in technical analysis, I highly recommend Peter’s blog post where the charts speak for themselves.

Taiwan is a great place to put your cash because it is proximal to mainland China and can benefit from the future growth opportunities there. However, Taiwan still enjoys a small degree of autonomy from Beijing and economic ties with the West that are a bit more robust.

The big risk for investors is that technology stocks make up much of the EWT fund, a big reason for its outperformance in 2014. These include tech giant Taiwan Semiconductor /quotes/zigman/189771/delayed/quotes/nls/tsm TSM +0.61% , which represents 21% of the entire fund’s assets.

However, I believe that hopes of a continued recovery in the West across the next few years will boost both enterprise and consumer technology sales. Furthermore, if China can continue to transition from a manufacturing powerhouse to a world player in technology and services, Taiwan’s mature businesses in this space will be a big asset.

SPDR S&P China ETF /quotes/zigman/478423/delayed/quotes/nls/gxc GXC +1.16%

• 60-day return: 7%


US : U.S.: NYSE Arca

Volume: 842,152

July 14, 2014 11:04a



Volume: 4.28M

July 14, 2014 11:04a

Market Cap

$ 118.20 billion

Rev. per Employee

$ 506,212


US : U.S.: NYSE Arca

Volume: 3,173

July 14, 2014 10:51a

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