The best markets to trade & invest

In this period of rising inflation, you might be wondering where to place your money. Well I'm happy to offer you several alternatives, each with their own appeal. This might be a period of asset price contraction, but its worth reflecting on several points:
1. There is still alot of money out there, and its because there is still alot of credit out there
2. The cost savings fundamentals of China, Vietnam, India, Indonesia and the Philippines still make alot of sense.

The first task is to understand what is happening. The Fed and other central banks around the world have been in a competition to debase their currency. Because the USA is the base currency, that is the currency in which most goods and debt are priced, it has a more favourable position, thus it has a lower risk exposure. Currency debasement has 2 impacts:
1. Encourages a wealth effect
2. It favours holding assets to avoid inflation
In the last 15 years we have seen a number of bubbles in internet stocks, energy stocks, etc. These were examples of money chasing assets. With low interest rates, speculation was cheap. It was fears of inflation and poor yields that actually contributed to weaker asset markets. At the same time with money supply running so strong, and with asset prices falling, the imbalance between money supply & the productive capacity of the global economy had to be corrected. Hence as asset prices have fallen, and property and equities are among the biggest, we have seen consumable prices increase. I suggest there will be more of this pressure, as well as wage pressures. That does not change the fundamentals for China. A demand contraction is just as likely to fuel manufacturing capacity additions in China, but it will be at the expense of plants in the USA or Japan. New call centres will be created in the Philippines, but it will be at the expense of call centres in the USA.
It goes without saying that those markets which have lagged will now become the strongest. I particularly like Vietnam because it has lower costs than neighbouring China, the Philippines because of its strong position in call centres. Mind you I think there are other economies that could benefit from taking this path, just the Philippines has the best brand. Very affable people, but at the same time, they don't have a very good work ethic. So alot of training is required to keep this market lead.
Japan has been sleeping whilst everyone has been striving. This is true of money supply and asset prices, so I particularly like Japan and the Philippines. The Philippines is more of a capital growth scenario, whilst Japan is more of a yield story because of its slow pace on reform and lack of population growth. The Philippines is positive by these measures, though needs to keep the momentum.
Looking at the commodity markets, the fundamentals for many economies remains in place for manufacturing centres like Asia, and with tight commodity markets, you could be forgiven for thinking commodity prices will remain high. There are infrastructure bottlenecks all around the world, with over 100 ships off Newcastle port (Australia), strikes in Chile by workers seeking higher pay, and even a shortage of consumables, geological experts, etc. I wonder if there are enough ships? As the USA debases its currency these commodity currencies should remain fairly strong, particularly major food producers like NZ and Australia, as food prices have until 2007 really been trailing for the reasons mentioned above. So the markets that strike me as the best to trade are:
1. Precious metals - offer growth - see Commodities blog
2. Agricultural commodities - offer growth - see Commodities blog
3. Industrial commodities - offer trading opportunities - see Commodities blog
4. Property in Japan - offers yield- see Foreclosures and Property Market blogs
5. Property in Philippines & Indonesia - offers best capital growth - see Foreclosures and Property Market blogs
6. Currencies - Australia and NZ -trade long for interest swap and appreciation - see Forex Trading blog.
7. Equities - Stocks with a strong focus on commodities, whether mining or farming. I have a preference for those countries which are not big exporters, eg. Indonesia, Philippines, because they will not be penalised as much from forex exposure, but there are other factors to consider. Other good sectors are mining & rural service providers. In the broader equities market, infrastructure, utilities and healthcare will be ok, but not yet, and not nearly as lucrative. I dont know why I mentioned them. Really just so you dont buy them!

In the coming months I will be writing up notes into a number of eBooks for how to trade these markets. The first eBook is on Japanese Foreclosed Property.
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Andrew Sheldon www.sheldonthinks.com