What’s everyone’s opinion on the run up of the foreign stocks? Have you guys taken profits if you hold a China fund or better yet anyone buying in at these levels?
Most people I’ve talked to feel that the valuations on EM stuff is a bit high for short term trading, but that the long-term story that growth over the next decade will be stronger in EM countries than in the developed regions is still a compelling argument for longer time horizons. When I left Brazil in 1999, I had some money in a Brazilian account (HSBC). I would take a hit of about 10% by exchanging it, and since bank accounts were so difficult to open, I just left it there, some in a dollar-linked fund, and some in the Bovespa index. That has performed very nicely… alas, it was just a thousand bucks or so. China is very frothy and to my eyes is very much a replay of the US in the 1920s. What to do in a frothy market? I was thinking about it last night and would say that a long-short fund that is maybe 20% or 30% long would be the best approach. The net long is really just a bet that nothing too terrible is likely to happen before the olympics, and the “close to market neutral” strategy is protection against a pop. I haven’t looked, but I suspect that options are underpriced and might be good to have in your back pocket for the occasional bumps along the way. The challenge is that you can’t short Chinese stocks very easily, so maybe short an index and go double long on the things you like. Transaction costs could be difficult there. With the US, it’s hard to see where the US consumer is going to get discretionary funds for spending. Home appreciation and equity loans are harder to come by, and what I’ve heard is that while mean income has increased, median income has not done so well. Business investment is probably ok. All this tells me that one should be moving out of the US (though if you are a foreign investor, the weak dollar might make the US more attractive).