At the moment the dispute between Russia and Ukraine is the proverbial ‘boomerang’ crisis.
It keeps coming back.
It was only two weeks ago that we had dismissed the crisis as irrelevant.
Were we premature?
Perhaps. But does it make any difference to how we’re investing today?
Not a bit. Here’s why…
We have a distinct approach to investing in this ultra-risky market.
That involves recommending that most investors have around half of their investable assets in cash and precious metals.
How much you allocate to each of those is entirely up to you and dependent on your comfort level.
We then recommend that most investors have at least a quarter, but preferably a third of their investable assets in sound, dividend-paying stocks. That’s the type of stocks you hope you’ll never have to sell.
As for the rest of your investable assets, well, that’s where things get a bit more exciting.
Aside from grouping assets at the ‘big picture’ level, we also like to group them at a smaller level.
Right now, we like three distinct areas:
Out of those three markets, technology has already begun to show a lot of promise. The US NASDAQ market has had a great run over the past year.
Investors have flocked into technology and biotechnology stocks as the US economy showed signs of life…and as investors started to take more risks.
So after such a great run it’s not surprising that tech stocks have fallen back over the past few days in line with the rest of the market. But considering where we see tech stocks going over the next five years, it creates an opportunity for new investors to get into these stocks at a discounted price.
That’s why we’re so pleased to see that Sam Volkering has identified the key tech trends for 2014. This includes his top four tech and biotech stocks to benefit from these trends – he calls them his tech ‘moon-shots’.
You can check out the fascinating story behind Sam’s work here. A word of warning: Sam was in such a rush to get this message to you that, well, to be blunt, some of the production values leave a lot of room for improvement.
At one point, if you listen carefully, you can hear a clapping sound in the background. And at a couple of other points, Sam muffs his lines. Anyway, Sam thought it was more important to get this message to you sooner rather than waiting to give you the polished version. After watching the film in full, we agree.
In short, if you’re not investing in tech stocks today, you’re potentially missing out on one of the hottest (perhaps the hottest) sectors in the market today.
But it’s not the only hot sector.
We started to talk up the resource sector early last year. It turns out we were about five months too early. Resource stocks took a beating starting in February of last year, lasting through until June.
That was when the sector started to show some signs of life. But you could hardly call it a complete recovery. At the moment, the biggest impediment to the resource sector is still in play – financing.
Many investors forget the fact that securing financing for a project is just as important as actually finding a resource. If a company can’t raise capital from investors or get a loan from creditors, then a project is dead in the water before it even gets started.
So over the past few months, even though many small-cap resource stocks have discovered new deposits, or expanded an existing one, the market has been less than enthusiastic.
But we don’t see that lasting long. Regardless of what happens in Eastern Europe, the Middle East or South East Asia, there will always be a demand for raw materials.
Whether that’s iron ore, copper, natural gas or oil, there will be a huge demand. Think of it this way: even if China stopped consuming all iron ore tomorrow, there would still be demand for the roughly 55% of the market that isn’t Chinese.
Sure, there would be a big supply overhang, and lots of inventory to run down. But that’s our point. Is that likely to happen? No. China’s consumption of iron ore and steel won’t fall to zero. China’s economy is set to double within the next nine years, even if its growth rate slows to 7%.
And that brings us to our final point.
The third market we like this year is another sector the market hates – emerging markets.
Obviously the biggest driver of emerging markets is China. Some would argue it is the emerging market.
But in reality there’s much more to it than that. There’s the whole of south east Asia, and of course Africa. Not to mention the Latin American economies that have still somehow managed to grow despite decades of corruption.
We’ve written about the emerging markets opportunity for several months. The way we see it is that the mainstream has done what it always does – it has allowed short term and irrelevant factors to cloud the entire market.
Argentina’s debt issue and troubles in Ukraine are a great example of this. But it seems that we’re not the only one who likes the look of emerging markets. As the Financial Times reports:
‘Artemis’s William Littlewood has reversed his ultra-bearish view of emerging markets for the first time since he launched his flagship £998m Strategic Assets fund in 2009.
‘Mr Littlewood believes emerging markets are now in a better position that their developed counterparts.‘
Not everyone agrees with that view. The FT notes that another fund manager, John Chatfield-Roberts, believes that emerging markets will have a poor year as investors focus more on developed markets such as the US or Europe.
This uncertainty is exactly why we see emerging markets as a speculative opportunity. It’s not the sort of investment where you should allocate a quarter or half of your assets.
But to potentially earn some good speculative gains from a beaten-down market, there are few better places to invest right now. It makes sense to keep this high-risk sector on your radar this year.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: Mining Boom Act II