Saltydog Portfolio: why now is the time to be optimistic

hong-kong-city-with-view-from-river-and-boat

Investors are perhaps overly concerned about the results of future elections, referendums, global debt, China's economy; the list is endless.

Recent events have seen the pollsters' predictions turn out to be almost universally inaccurate. These same predictions of gloom and despair, although subsequently wrong, have resulted in investors listening and then parking enormous amounts of cash on the sidelines.

But if there is to be a market crash in the near future, this same money is waiting in the wings to be reinvested, and would likely mitigate the extent and length of the fall.

Perhaps in these circumstances the bull market has further to run, and now is the time to be optimistic whilst financial commentators are pessimistic.

LOOK TO ASIA AND THE FAR EAST

Now, I am not in any shape or form, by training or inclination, a financial expert. However, I have been well-versed and relatively successful in seeking out likely export markets for the products that my companies used to manufacture, and deciding where to place my money is not a dissimilar challenge.

It is a matter of recognising when the circumstances are favourable and likely to leave one with an opportunity for gain. I believe that Asia and the Far Eastern emerging countries could be capable and ready to produce this result.

China is now only second to the USA as the world's leading economy, yet 10 years ago it lay sixth behind Japan, Germany, the UK and France.

saltydog-list-of-funds-january

Today, in terms of growth, it lies second to India and just ahead of South Korea and Vietnam, all of which have growth rates of around 6 per cent, with other economies in Asia following similar paths.

It is certainly true that their living standards (based on Western views) are many years behind those of the West. However, this is changing at lightning speed as this predominantly young population seeks a progressively greater level of higher education.

Perhaps more than the West, they are going to be capable of coping with and possibly directing the new technologies of the future.

EMERGING MARKET FUND EXPOSURE

There are several unit trusts and oeics that have investments in individual countries, and some funds that take a broader view across the whole area, thus reducing any direct risk.

Examples include: Marlborough Emerging Markets, M&G Global Emerging Markets, Lazard Emerging Markets, Neptune India, Henderson China Opportunities, and Baillie Gifford Greater China.

These funds have not enjoyed a particularly good time in the last two months, thanks to Trump's protectionist pronouncements, but over the last six months their performance has been far from shabby, and they should be able to shake off this recent setback as China and Asia quickly become more self-contained.

saltydog-ocean-liner-portfolio-versus-footsie-performance

Should the above synopsis hold water, there is another asset class that should see gains, and that is commodities. The larger part of the world's population live in these areas, and when they see financial gain and greater security they will start to consume more goods.

They will have a voracious appetite for raw materials and resources that will cause the rest of the world to have to fight and 'pay' for their share.

FUND SECTOR PERFORMANCE TRENDS

China's geopolitical strategy has already secured much of its future needs in Latin America, Central Asia and Africa, as it has already put in place long supply lines for future growth. Unfortunately I do not see much of this forethought taking place in Europe.

The chart below (click to enlarge) shows the annual returns from each of the main sectors, in descending order of performance.

investment-association-sector-analysis

It is very noticeable in the case of the emerging markets how one year at the top is followed by a year at the bottom. Sooner or later this repeating trend will be broken.

saltydog-ocean-liner-pie-chartChina would seem to have a more consistent performance, although both sectors lag the performance of North America.

The last year has been difficult for investors and I am sure we have some distance still to go in this environment.

Our Ocean Liner portfolio is best placed to take advantage if these more volatile sectors perform well.

It 'went safe' before the recent US presidential election, with our cash holding increasing to 65 per cent of the portfolio, but we are currently in the process of reinvesting.

For more information about Saltydog Investor, or to take the two-month free trial, click here.


Subscribe to Money Observer magazine

 

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
By submitting this form, you accept the Mollom privacy policy.