Vince Stanzione believes that twenty years from now the US and European economies will no longer be the world leaders
When I started as a trading junior back in 1985, one of the first sayings I learnt from my boss was, 'when America sneezes, the world catches a cold' and that has remained true to date. We have all witnessed how quickly a financial cold that started in the US has spread around the world.
Looking ten or 20 years ahead though, do you really think the same saying will stand? I don't, and while the US and Europe will still be important economies they will not be the leaders.
Somehow, the hope is that the US can fix its financial problems quickly and return to glory, but I hate to tell you, Mr Obama, your country has had its best years.
The new dominant market, whether you like it or not, is China and other Far East regions. Also, Brazil is in good shape. I am not a big follower of the Indian market, but this region also has growth prospects.
This is not just a bear market in US and European shares, it's a re-adjustment to the reality that these markets are not the leaders anymore and the financial system is near bankruptcy. The idea that the Dow Jones, FTSE100 or S&P500 is going to make some miraculous recovery is just wishful thinking.
Hilary Clinton's recent visit to China to reinforce relationships seemed more like a charity request than an official visit. The US thinks that China needs to keep buying treasury bills; it does not - the US needs China more than it needs the US. And the worse the economy becomes, the less likely it becomes that China will support the US.
China will look after its own people, economy and banks, moving money back home wherever possible. At some stage, I think the US treasury market will go into serious bear territory.
The strongest banks in the world are all based in the Far East. You don't hear about Bank of China, Industrial & Commerce Bank of China or China Construction Bank needing a bail-out. HSBC, while slightly bruised, is still a quality bank and did not need any government assistance.
While the US and Europe will get bear market rallies, there will be no resumption of a bull market for years and even if it does return, you are better off having your money in other markets. The only US or European companies you need to invest in are those with a strong link to growth regions.
Look at the China 25 Exchange Traded Fund FXI (US listed) and FXC (UK listed). This is made up of 25 of the largest tradable companies. The ETF is very heavily weighted to financials but these are the banks and insurance companies I don't mind owning. We also have China Mobile, Petro China and China Shenhua Energy to name a few.
While down, the China 25 has held up far better than the US or UK markets and will continue to do so. This index has stayed above November lows. I don't suggest you put your life savings into this, but rather invest every month or so and build a position. I also like Brazil and this can be traded via the Lyxor Brazil ETF.
With oil back at $45 a barrel and with the crowd bearish on oil prices I have to say that buying quality oil companies has to be a good move. Some oil majors to look at include BP, Petro China, Exxon Mobil, Chevron, Petroleo Brasilerio, Total Sa and Statoil Hydro. I see oil prices averaging over $60 as we move into the second half of 2009 and this will be good for the above mentioned companies.
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