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Justin Kuepper

International Investing Blog

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Singapore's Industrial Production Falls Sharply

Monday May 26, 2014

Singapore's industrial production grew by just 4.6% in April compared to a 12.1% increase in March, according to government data. The slowing business activity indicator resulted from a contraction in electronics output that offset gains in biomedical manufacturing within the Asian country.

The figure was short of economist estimates of 5% growth. In prior months, industrial production benefited from a pickup in pharmaceutical output and offshore marine engineering, although analysts believe that these trends are not sustainable over the long run as semiconductor output weakened.

Investors in the iShares MSCI Singapore Index Fund (NYSE: EWS) may want to take note of the slower than expected readings when U.S. trading opens on Monday. Since the beginning of the year, the ETF is trading up 4.63%.

Divergence in U.S. Consumer & Business Sentiments

Thursday May 22, 2014

The majority of consumers believe that the economy is heading towards decline, with the Bloomberg Consumer Comfort Index reaching 42.5 in May from 48.0 a month earlier. At the same time, the majority of economists remain bullish on the economy with the Conference Board's Index of Leading Economic Indicators jumping 0.4% in April following an upwardly revised 1% gain in March.

The divergence comes as consumer incomes remain stagnant, while many businesses have benefited from record low interest rates. With the stock market moving sharply higher, many wealthy citizens have realized extraordinary returns at a time when the average person has struggled with high unemployment. These trends are also driving increasing inequality in the United States.

To learn more about consumer-focused economic indicators and some potential pitfalls of relying on them in 5 Economic Indicators for Measuring Economic Health.

Where do you think the U.S. economy is heading? Let us know in the comments!

Portugal Exits Euro Bailout Program

Saturday May 17, 2014

Portugal is set to become the latest country in the Eurozone region to exit its bailout program and regain control of its economy. After being issued a $107 billion rescue package in 2011, the country underwent harsh austerity measures that jumped its unemployment and shrunk its economy. The efforts did succeed, however, in getting its finances back in order and setting the stage for future growth.

The larger economic picture is a bit more mixed, with the 18-country region posting just 0.2% growth during the first quarter of 2014. The majority of that growth came from Germany, with many other countries in the region suffering. Meanwhile, Portugal's debt remains twice the level that European rules suggest, meaning that additional cuts may be required over time in order to fall completely into line.

Shares of the Global X Portugal 20 ETF (NYSE: PGAL) have jumped nearly 13% since their introduction in November of 2013.

Moral Hazard and Chinese Shadow Banking

Thursday May 15, 2014

The rapid growth in China's shadow banking system has enabled depositors to obtain higher returns than available from traditional banks. Of course, these returns come at a greater risk, but many depositors may not realize the risks. These dynamics have increased moral hazard as investors are unaware of the real risks and rely on state-owed banks or governments to ensure return of their capital.

At the National People's Congress in March, Premier Li Keqiang conceded that little is likely to change. The government remains committed to structural reforms, but investment remains very important to reaching the targeted 7.5% GDP growth. The cracks have already started to appear in the system and it could just be a matter of time before investors become aware of the greater risk.

IMF Calls for Austerity in Ukraine as Precondition

Saturday May 10, 2014

The International Monetary Fund ("IMF") announced that one of the conditions of its loan to Ukraine would be fiscal austerity for the next two and a half years. With the country's economy already in recession and the IMF already projecting a 5% drop in 2014 GDP, the move could result in a significant hit to the country's future growth prospects and ability to repay its loans and generate investor returns.

Unfortunately, the country doesn't have much of a choice given its risky political situation following Russia's invasion. A large portion of the bailout funding will go towards paying off gas arrears to Russia and cover future energy costs, with the remainder going towards supporting the troubled economy and its national currency that has been under tremendous pressure.

Last month, Russia doubled what it charges Ukraine for gas, which will put additional pressure on the country and region.

Federal Reserve Continues Tapering Amid Uncertainty

Thursday May 8, 2014

The Federal Reserve decided to continue tapering its bond purchases by $10 billion per month in a recent Federal Open Market Committee meeting. While many investors weren't expecting anything different, stagnant GDP growth during the first quarter of 2014 raised some concerns that the tapering may be too soon.

"Growth in economic activity has picked up recently after having slowed sharply during the winter in part because of adverse weather conditions," read the FOMC policy statement. "There is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions."

The FOMC began its tapering program back in December 2013, which has had a dramatic impact on many emerging markets, including those in Turkey and Indonesia that rely on foreign capital.

Are You Already Diversified with the S&P 500?

Tuesday May 6, 2014

Many financial advisors recommend holding at least 25% exposure to international markets outside of the United States. With the growing impact of globalization, some studies suggest that the S&P 500 may already include about 32% exposure to international markets in the form of multinational sales. So, do investors need to look elsewhere to ensure they are diversified internationally?

The answer is a bit complex. The S&P 500 provides selective exposure to international markets that's overweight in the Americas and underweight in Europe and Asia. Moreover, the S&P 500 includes primarily equity exposure rather than corporate bond or sovereign debt exposure. As a result, investors may want to consider supplementing the S&P 500 with other international assets.

Gain Exposure Abroad with Index Options

Wednesday April 30, 2014

European-style equity index options can be a great way to gain exposure to foreign indexes without committing large amounts of capital. By giving the holder the right, but not the obligation, to buy or sell a basket of stocks, such as Germany's DAX 30 index, at an agreed upon price and date, index options let investors profit from an expected market move or reduce the risk of holding the underlying asset.

While foreign equity index options are a bit more difficult to trade than their domestic counterparts, there are many different choices for international investors that would like to diversify their portfolios without the upfront cost. For example, Britain's FTSE 100 index option (LSE: ESX) provides exposure to a large chunk of Europe's equity markets at a fraction of the cost of buying the actual index.

Is the Emerging Markets Rally Over?

Monday April 28, 2014

Financial Times' Beyond BRICs blog recently questioned whether or not the emerging markets rally has ended. According to the IIF, money flow into emerging markets may be lessening after a short rally. The organization noted that portfolio flows moderated in April to $25 billion after surging to $38 billion in March from $17 billion in February. The iShares MSCI Emerging Markets Index ETF (NYSE: EEM) moved 1.5% lower over the past five trading sessions.

International investors following emerging markets may want to check out the many other international investing blogs that are covering the space.

Investors Shouldn't Discount the Socialists

Wednesday April 23, 2014

The Global X FTSE Nordic 30 ETF (NYSE: GXF) has outperformed the S&P 500 SPDR (NYSE: SPY) by 3.27% since the beginning of the year, despite the fact that the Nordic region tends to be more socialist whereas the U.S. tends to lean more capitalist. These trends also held true over the past 52 weeks with GXF posting 25.26% gains versus just 20.55% for SPY over the same timeframe.

Socialist economies like Venezuela and Argentina should probably be avoided - even though Venezuela was a top performer in 2013 - but investors shouldn't ignore more responsible socialist countries like the Nordic countries or certain European countries like France that have historically been stigmatized.

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