From Fear of COVID to…Fear of Missing Out
When I lived in Boston in the 1970s, local retail store Filene’s Basement was an icon. Located in the heart of the city, the name was synonymous with deep discounts. The store no longer exists but during its heyday, the frenzy of shoppers in its crowded aisles, pushing and shoving for bargains, was a fearsome sight.
Filene’s Basement comes to my mind today, as investors shake off Monday’s stock market plunge to go bargain hunting with a vengeance. Below, I highlight a neglected overseas source of investment bargains that you probably haven’t considered.
After Monday’s bloodbath, triggered by fears over COVID’s resurgence, stocks came roaring back on Tuesday. The Dow Jones Industrial Average soared 549.95 points (+1.62%), the S&P 500 climbed 64.57 points (+1.52%), and the tech-heavy NASDAQ jumped 223.89 points (+1.57%). The small-cap Russell 2000 rose 63.62 points (+2.99%).
In pre-market futures contracts Wednesday, all four indices were trading sharply higher and were poised to extend Tuesday’s gains. Investors are continuing to scoop up stocks that were clobbered on Monday. Cyclicals are driving the rebound, and the surge in small-caps is an indication of economic confidence.
When bullish conditions are still in place, as they are now, it’s common sense to buy on the dips. Pullbacks represent a good time to build up existing positions in strong companies or buy into stocks that you didn’t get into earlier.
Despite recent COVID scares, stocks still enjoy tailwinds from easy liquidity, fiscal and monetary stimulus, high household savings rates, upside earnings surprises so far for the second quarter, and corporate buybacks.
Some analysts also are starting to downplay worries about the COVID Delta variant, arguing that it ultimately won’t do much to dampen consumer and business activity. That optimistic scenario remains to be seen.
Regardless, investors don’t seem overly concerned about runaway inflation right now, as reflected in the decline of bond yields to their lowest levels in five months.
Ride the tigers…
Unless there is some clear indication that the global economy is about to stumble, investors should remain long and buy on dips in the market. If you’re looking for bargains, don’t be parochial. Look overseas as well, especially to Asia.
China and surrounding countries are poised for stellar economic growth this year and they’re tackling massive infrastructure projects that will further stoke growth.
Not only does Asia boast strong economic growth fundamentals, but a capital expenditure cycle also is underway at Asian corporations, which will boost their earnings this year and next. The market has yet to price in this fact, and once investors catch on, the stocks of these companies will appreciate.
China isn’t the only investment game in Asia, as the following chart shows:
Good morning, Vietnam…
One appealing, but widely ignored, investment opportunity in Asia right now is Vietnam. That’s right, the very same nation that embroiled the U.S. in a bitter Cold War-era proxy war from 1955 to 1975. Vietnam, once a byword in America for military quagmire and social division, is now a major trading partner with Uncle Sam and the rest of the world. It’s also a highly popular tourist destination.
According to a recent report from the Asian Development Bank (ADB), Vietnam racked up the region’s fastest growth in 2020, and it’s projected to come in second in 2021, behind China.
Vietnam and China were among those Asian countries that managed to skate through 2020 without negative gross domestic product growth, due to low COVID infection numbers. Centralized public health management, as well as a long cultural tradition of wearing masks for hygiene and disease prevention, contributed to the comparatively minor rates of infections and deaths from the pandemic in many Asian countries.
As with China, Vietnam is a mercantile nation that’s only communist in name. Vietnam’s economy is becoming less dependent on a top-down command structure and state-subsidized conglomerates, and more tailored to free market forces.
The Vietnamese government encourages economic competition among its 63 provinces, invests heavily in education and training, and launched several initiatives to foster innovation such as technology industrial parks.
As equities in the developed world hover at excessive valuations, look to this awakening “Asian Tiger” for reasonably valued growth opportunities.
Go for the gold…
My overall stance remains bullish, but another dip could easily occur sometime this summer. Investors must have a hedging strategy in place, and gold is a natural hedge for long portfolios.
Long-term investors should hold stocks of strong gold companies in their portfolios; these companies will continue to benefit from COVID-related anxieties. In an uncertain market, gold investments (stocks, funds and physical bullion) are simple and effective hedging mechanisms.
I prefer gold miners, which offer exponential gains because of corporate operating leverage. For specific details about our favorite gold mining stock, click here.