Categories: Economic NewsSector Rotation

Making Money Alert: How to Cope with Slower Global Growth

[youtube_sc url=”http://youtu.be/Y4e88wsxwsw”]

The global economy is slowing. That’s according to the latest report by the International Monetary Fund (IMF). The IMF cut its global growth forecast for 2012 to 3.3% from 3.5%. It also said that global growth was likely to continue slowing in 2013.

Well, I doubt that this news is any revelation to anyone who has watched the goings on in Europe, China and the United States over the past nine months. In fact, coming out with a ratcheted down growth forecast for 2012 is like coming out today and predicting that the Miami Heat will be the 2012 NBA Champions.

Still, I think what the IMF said about the slowdown is something worth exploring. Here’s the money quote from the IMF on the current situation:

“A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the slowdown has a more lasting component.”

The IMF went on to explain that the answer to this issue will be dependent on whether policymakers in Europe and the United States are able to successfully navigate their major short-term economic challenges. Well, thanks for telling us something that’s painfully obvious.

When I read the report, I thought it was noteworthy that the IMF pegged the United States for 2.2% growth. That’s actually expected to be among the fastest-growing developed markets in 2012. By comparison, the euro zone is forecast to contract by 0.4%. According to the IMF, emerging markets are projected to grow by 5.3%. It is here where I think investors are presented with the best way to cope with slower global growth.

If we look at the chart below of the Vanguard Emerging Markets VIPERS (VWO), we see that despite a volatile year, the trend since June is decidedly bullish. This fund now trades above its short-term, 50-day moving average, and its long-term, 200-day moving average.

Given the growth prognosis for emerging markets, I suspect that this is where the smart money will continue migrating to in the months to come. As such, smart investors will want to consider putting funds such as VWO on their watch lists.

Another fund to put on the watch list is the iShares FTSE China 25 Index (FXI). This basket of big-cap China stocks also has had a volatile couple of years. But since June, the fund has made a nice push higher. FXI also just broke back above its 200-day moving average.

If conditions in the second-largest economy in the world begin to improve, and there are strong reasons to suspect that it will, then we could be looking at the beginning of a new leg higher in China and, by extension, the emerging markets of Asia.

Thatcher-esque Wisdom

“Disciplining yourself to do what you know is right and important, although difficult, is the highroad to pride, self-esteem, and personal satisfaction.”

–Margaret Thatcher

The great British prime minister was not only an outstanding leader; she also was a woman of principle. You could see her commitment to values in the decisions she made, and you can see the root of that commitment embodied in the above quote. I think it’s safe to say that if we had more leaders like Mrs. Thatcher, the free world would be in much-improved shape.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Doug.

To the best within us,

Doug Fabian

Doug Fabian is the Editor of Weekly ETF Report, a free weekly e-newsletter, and the newsletter Successful ETF Investing. He’s also the host of the syndicated radio show, “Doug Fabian’s Wealth Strategies.” Doug also edits the fast-paced trading service ETF Trader’s Edge, for investors who want to take their profits to the next level. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug became a member of the “SmartMoney 30” in 1999 — a listing of the most influential individuals in the mutual fund industry. In the feature, SmartMoney magazine exclaims that Doug is the best-known “trend follower” among the $56 billion (and growing) group of financial advisors. In 2001, Doug wrote “Maverick Investing,” published by McGraw-Hill. He also regularly appears at seminars around the country, stands out on the pages of the largest newspapers (The Wall Street Journal, The Los Angeles Times, and The New York Times), and speaks on national television (CNBC, Fox News, and Bloomberg Forum). For more than 35 years, Successful ETF Investing (formerly the Telephone Switch Newsletter and Successful Investing) has produced double-digit percentage annual gains. Doug has become known for his expert knowledge and timely use of innovative tools, such as exchange-traded funds, bear funds, and enhanced-index funds to profit in any market climate. For more information about Doug’s services, go to http://www.fabian.com/