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Stock Market Predictions: A Huge Bull Market in Foreign Stocks!
by Mark Skousen, Chairman, Investment U
Thursday, December 22, 2005: Issue #497
I caught some flak with my recent column, U.S. Economic Outlook: The Doomsday Myth, the “Boomsday” Reality, and Forecasts and Predictions for the U.S. Economy. One subscriber asked, “Does this go against the advice you offered in Investment U #494, to buy hard assets and avoid stocks?”
To respond: First, note that I said the U.S. economy was booming. That’s not the same as the U.S. stock market, whose performance has been lackluster because of Fed tightening, fear of tax hikes, and the war in Iraq. There’s much slip twixt cup and lip.
The stock market is forward-looking, and it sees a lot of uncertainty. Remove that uncertainty in Fed policy or troop withdrawal from Iraq, and the U.S. stock market will explode upwards.
But until that happens, here are my stock market predictions for 2006
Maximize Your Profits in the Markets By Looking Overseas
Many investors have missed out on another booming stock market – in Asia, Latin America and even Europe. This year, the returns in foreign markets have been spectacular, far outperforming the U.S. Take a look
The MSCI Stock Indexes
- United States +5.4%
- Britain +14.1%
- Canada +22.0%
- Japan +36.9%
- France +23.8%
- Germany +22.9%
- Hong Kong + 4.2%
- Switzerland + 31.5%
- Australia +17.1%
And 2005 has been a strong year for the dollar. (I might add that when all the doomsayers were predicting a collapse in the U.S. dollar last year, I predicted that 2005 would be the “year of the dollar.” So far, the dollar has rallied against the euro, the British pound, and the Japanese yen.)
Take a look in the following chart at the difference between the iShares Dow Jones U.S. Total Market Index (AMEX: IYY) and the iShares Morgan Stanley Emerging Market Index (AMEX: EEM) over the past three years.
What a difference! For the past three years, emerging market stocks are up 150%, while the U.S. market is up 13%. Emerging markets have outperformed the U.S. market by huge margins.
Stock Market Predictions: Foreign Stocks To Outperform in 2006
The Morgan Stanley Emerging Markets Index (EEM) is no small-cap stock fund. It includes such giants as China Mobile, Lukoil and Samsung Electronics; 90% of EEM stocks are either ADRs (American deposit receipts) or GDRs (global deposit receipts) that trade on U.S. exchanges.
Emerging markets have an advantage. While the U.S. market is much more expensive, selling at an average 16 times earnings, emerging markets, even after a three-year bull run, are still selling for only 12 times earnings. Of course, there’s greater volatility and risk associated with emerging markets, but most observers still forecast these foreign markets as bargains.
At the recent San Francisco Money Show, I talked at length with Julian Mayo, investment director and money manager of Charlemagne Capital based in London, who specializes in emerging markets. He thinks they are in the early stages of a major bull market, and his prediction is they will do well in 2006.
Moreover, I think the U.S. dollar could weaken in 2006. That could calculate to even more profits for foreign stock buyers.
My recommendation: Put Asia, Europe and Latin America into your stock market portfolio in 2006. (And, in case you are wondering, I’m still projecting bullish gains on precious metals and natural resources in the new year, despite a recent severe correction.)
Good trading, AEIOU,
Mark
P.S. I’m happy to report that my new book, The Compleated Autobiography by Benjamin Franklin is now in the bookstores for the holidays. Pick up a copy today. (For a review of what this book is all about, go to www.mskousen.com, or purchase it directly on Amazon.com.
Today’s Investment U Crib Sheet
- Speaking of precious metals and natural resources Revisit Investment U #488, Where To Invest Your Money NOWWhen Your 15% Investment Tax Is On the Line, and Investment U #494, Gold as an Inflation and Market Indicator: Where to Put Your Money When Prices Edge Higher.
- I mentioned that there’s a difference between the U.S. economy and the U.S. stock market If you haven’t done so already, take a look at Investment U #495, U.S. Economic Outlook: The Doomsday Myth, the “Boomsday” Reality, and Forecasts and Predictions for the U.S. Economy.
- Emerging Market ETFs… Five Ways to Play
- Stock Market Predictions: “Crazy” About the Dollar
- The Center of the Stock Market Universe… Revealed!
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