Why are volatile foreign markets

From Jim Jubak

The Japanese market has already started to grow this week for many reasons. Expect more of that in 2013, as investors flit from market to market.

On Jan. 16, Japan's Nikkei 225 index fell by 2.6%. It was doubly surprising.

Firstly, it was surprising, because on the Tokyo Stock Exchange has been on a roll-25.6% from 14. by 15 January and 9.4% from Dec. 21 to Jan. 15. And secondly, because of the "cause" section drop was a series of absolutely harmless comments is a member of the Japanese Parliament (which pointed out that it was not just for the weaker Japanese consumers) and two members of the Cabinet of Prime Minister Shinzo Abe, (who said that a weaker Yen is not good for all Japanese companies).

That was enough to send Japanese stocks by 2.6% on the day?

Welcome to the wonderful world of hot money, 2013styl. So far this year, we are looking at a market that has no confidence that the trend now is going to be the trend in the next moment. And the market is, therefore, constantly sloshing toward opportunities minutes or from the possibility that the trend reached a peak. I think these will make sloshes emerging markets--with their smaller market capitalization than in the us, Europe or Japan--especially volatile. And because they are markets that is going to best in 2013, which is for some very complicated position to investors.

Let's get a little more detailed look at what happened in Japan and then see how these dynamics related to the rest of the global stock market.

Assembly in Japan is the yen.

There really isn't anything else is very excited. Japan's economy is in recession, and the World Bank predicts that gross domestic product will increase by 0.8% in 2013 and 1.2% in 2014. The economy is functioning below capacity, with the output gap (the difference between the full capacity of the economy and the odds, running now) for 5 to 7%. Debt-to-GDP ratio amounts to 240%, the highest in the developed world, and the Government in just 100 yen for every 200 yen spent, with tax revenue on 24leté low. The ageing of the population – 23% are expected to be older than 65 in 20 years, up from 12%-and shrinking forecasts fall to 90 million in 2050 from 128 million people.

Jim Jubak

A little black humor about demographers in Japan: the current trend, in 600 years, there will be 450 Japanese left. And I will be much poorer for it. Japan's unemployment rate of 5% is low by international standards but high in comparison to its unemployment rate before 1991 2% to 3%. Average annual salaries decreased every year since 1999 and now 12% of all. About 34% of the workforce is now working part-time or contract jobs, up from 20% in 1990. In 2009, according to government statistics, 15.7% Japanese, including 14% of children and 21% of older people, lived below the poverty line.

It is obvious that you put money into Japan profit from medium-or long-term trends. (It will be in the long term, given the extraordinary modesty of past generations of Japanese savers; the country is still sitting on 19 trillion savings).

However, putting money into Japanese stocks--especially those Japanese exporters--in the short run due to a fall in the yen and a projection of continuing decline. Only decreased by 14% against the US dollar since October. It is not just swing a small thing when Toyota Motor (TM), that any deviation 1 yen against the US dollar produces 397 million dollars in annual profit for the company. In Nissan Motor (NSANY) shift from recent 89.21 Yen to the dollar and 2012 average 79.82 yen per dollar is a 34% increase in profit.

Not surprisingly, shares of auto exporters, Mazda Motor (MZDAY) are up 114% to 16 January 2013 from 30 October 2012. And it's no wonder that the global money chasing so far began to despise the Japanese shares. Cash flow in place of Japanese investment funds is positive in October for the first time in two months.

The problem, however, is that almost all put money in Japan is also asking, "when will this end?"

The yen, which closed at 88.31 to the US dollar on January 16, could easily go to 90, or with more difficulties, 95 or even 100. But the trend will not last forever. The main force pushing back against Abe's Government campaign to weaken the yen. Any decline in the value of the yen against the dollar increases Japanese account for dollar denominated oil and natural gas. Every decline in the Yen takes another bite out of already stressed Japanese workers and consumers. Regardless of how Abe's Government be willing to debt on debt to weaken the yen and boost the Japanese growth, its capacity to do so has its limits. And it is the knowledge of these limits, which gave power to the movement of stock prices in Tokyo, a relatively mild comments about the cost of a weak yen.

And, of course, because the money that was pouring into Japanese stocks to take advantage of a declining appetite really has no faith in Japanese shares, or the Japanese economy in the medium term, it has no loyalty to the Japanese markets. Whereas the smallest signs that short-term party is over, the money starts to look in another hot market.

I think that the decline in the yen--and thus a rise in Japanese equities — might be coming to an end in the next few days or weeks? So what China rally? It's time for a global money do not show to Hong Kong and Shanghai?

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8 overseas markets worth exploring

By Jim Jubak

For all the attention paid to the so-called BRICS, only a couple have real potential. I've cast a broader net and come up with several stock plays in markets that are just now emerging.

A worker checks an electrical harness for a Bombardier jet at the company's manufacturing facility in Queretaro, Mexico.

Something not so funny has happened on the road to the future. The five overseas markets that were supposed to pave that road have crumbled, by and large, and some of them have even turned into potholes.

Oddly enough, the emerging markets that look like the best road now to future profits are much, much smaller than those BRICS -- Brazil, Russia, India, China and South Africa -- and don't even register in many investors' portfolios.

And on the evidence, they should. Most of us should own more stocks from Chile, Colombia and Mexico, from Turkey, the Philippines and Singapore, and from Nigeria and Kenya, than we do. It's not easy -- I spend my days looking for great companies to buy in those markets for my mutual fund, Jubak Global Equity (JUBAX), and I can tell you it's a hard search. But it is possible.

And I think that search is crucial to building a portfolio for the emerging emerging-markets world. So today, I'm going to share a few.

There's nothing especially wrong with the BRICS markets -- except that in the cases of Russia, India and South Africa, those economies have developed deep, deep problems. And that, across the BRICS group, many of the biggest plays on these emerging markets have underperformed smaller peers.

Drum roll: some numbers, please.

Established BRICS in 2012, through Nov. 7: iShares MSCI Brazil Index (EWZ) up 5.12%; iShares MSCI Russia Capped Index (ERUS) up 5.83%; iShares MSCI China Index (MCHI) up 6.58%; and iShares MSCI South Africa Index (EZA) up 9.22%.

Jim Jubak

Not bad, you say. I'd agree. Although the U.S. Standard & Poor's 500 Index ($INX) is up 16.43% year to date.

Now, the emerging emerging markets for the same period: iShares MSCI Turkey Investable Market Index (TUR), up 50.22%; iShares MSCI Chile Investable Market Index (ECH), up 8.21% to date; Mexico Bolsa (not traded in the U.S.) up 10.61%; iShares MSCI Singapore Index (EWS), up 25.24%; and iShares MSCI Philippines Investable Index (EPHE) up 36.07%.

What intrigues me about these emerging emerging markets, even after some of them have had this run, is that the fundamentals driving these stocks are by no means exhausted. Besides the usual developing-economy story -- above-global-average growth in gross domestic product leads to rising incomes, which leads to rising demand for everything from chickens to appliances to education -- the markets I've flagged are getting the benefit of sounder-than-average monetary and economic policies that are moving these countries up the credit quality scale. Turkey, for example, just got a debt upgrade from Fitch Ratings, moving the country up to investment grade for the first time in almost 20 years

You can find similar stories at most of these other emerging emerging economies. This fall, Moody's Investors Service began talking about raising Mexico's credit rating to A3 from Baa1. Moody's last upgraded Mexico in 2005. Moody's and Standard & Poor's both raised Colombia's credit rating to investment grade in 2011 and in August upgraded Colombia from stable to positive, a sign that the country could get another upgrade in 2013. Standard & Poor's raised its rating on the Philippines to BB+, one step below investment grade in August, and in October, Moody's moved the country to Ba1, also one rung below investment grade.

With many of these emerging emerging markets just now making the transition to investment grade, there's still plenty of room for future improvement.

Why do you care about this trend? A higher credit rating allows a country to borrow money at a lower interest rate, and that stimulates the domestic economy. Expanding or starting a business gets cheaper. Financing a new home gets cheaper.

And the contrast with what's happening in the world's largest economies is catching investors' attention. At a time when the United States, Japan and much of Europe are facing downgrades, these emerging emerging market economies are looking like better risks.

Of course, these economies still exist in the same world as China, the United States and other big global economic powers. A slowdown in the Chinese or U.S. economy hurts the export sectors in these economies. But even then, so robust is domestic growth that these countries stand a better chance of coming through with decent growth. That's especially true because healthy fiscal and monetary policies give these governments some room to run countercyclical economic policies -- they can stimulate their economies when they slow.

What I've been looking for over the past year or so, then, are solid, domestically oriented companies with a strong consumer bias. I'm certainly not averse to a company that combines those qualities with an export business as long as the company has found a way to diversify its sales to make up for any slowdown in the world's big developed economies.

I've got a few suggestions for you to research and add to your portfolios.

When do you want to buy? I'd suggest dollar-cost averaging into these stocks. While they are long-term picks, these stocks have enough volatility that you'd like to buy more when the price is low and less when the price is high.

My favorites in Turkey include: Anadolu Efes Biracilik Ve Malt Sanayi (AEBZY), a producer of beer and a bottler of Coca-Cola that sells in a market that stretches from Russia and Eastern Europe through the Middle East, and Arcelik (ACKAY), which sells its refrigerators, washing machines, cooking appliances and vacuum cleaners in more than 100 countries and is the third-largest appliance-maker in Europe.

In Mexico, I like Grupo Televisa (TV), the second-largest media conglomerate in Latin America and provider of an increasing amount of Spanish-language content in the United States through its relationship with Univision, and Industrias Bachoco (IBA), the country's largest poultry producer.

In Chile, I'd go with CorpBanca (BCA), Chile's fifth largest bank and a major beneficiary of the pullback of Spanish banks in Latin America -- CorpBanca bought Banco Santander's (SAN) Colombian unit in December 2011 -- and LatAm Airlines (LFL), the dominant airline in Latin America.

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