Mario's Market Takes: Allocating Your Assets Across the Globe Including China

Recently it was suggested to me that I am a permabear and for the record, need to state I am not a permabear. My approach to investing, assets and building wealth is “international asset allocation” which offers a constant straightforward question:

Where on planet earth should we allocate our assets for the medium and long term to keep them safe and have them grow?

So, for example, here’s a few current observations for a person holding $20,000 to $500,000 cash.

1. As a long term investor, should you put your money long in the U.S. stock market or European stock market or Hong Kong/China stock market now?

While the current stock rally does make people feel warm and fuzzy, I kindly remind you that if you put your money in stocks 10 years ago, you would now have the same amount of money; a pretty poor result don’t you think? If you are a swing trader, you are more aggressive and you are playing the market moves both up and down. But this is more time-consuming and risky. Subscription services including my own provide such more specific trading analysis. Otherwise, stay OUT of the market for the simple fact that entering a market when it is high is going to yield far lower returns against higher risk.

I also say this because in the coming three months there are global risk factors on the table which could easily cause the markets to plunge, ie., European debt issues, rising bond yields, rising crude oil prices, the continued use of high-leverage derivatives, and the coming reset of mortgages in the U.S. market which was exactly the same event which precipitated the last crisis plunge. All of these are serious, genuine reasons to be cautious, and which can send the world’s financial markets reeling.

So then, if you have less cash such as the $20,000, , risk NONE of it. If you have more, such as $500,000, then consider allocating a smaller percentage of it into U.S. stocks.

2. What about the China/Hong Kong/Emerging stock markets?

Yes, due to China’s global economic rise and more robust growth, this is probably a safer choice. Living here in China for 11 years now I can see first hand that the domestic economy is booming,people are out spending money; believe me, it is a sight to behold!

Same point for the investor with a larger portfolio: consider allocating a smaller percentage into the China/Hong Kong/Emerging markets.

3. What about specific sector plays?

Yes, we can go into great depth on specific sector asset allocation. But in the end, these sectors are subject to the same risk as the general markets. They will highly correlate to the general market correcting downward or plunging together with a crisis development.

4. What about allocation to gold and silver?

Gold has shown very strong support at the $1080 price range and so again, a smaller percentage of your portfolio could be allocated to gold and silver positions. Timing is the issue. Gold/silver are in a nice rally right now, with gold currently around 1160. So then if gold rallies to 1200 over the next couple of months, you made $40. Big deal! The price of gold is volatile and in one week could easily go all the back down and poof there goes your $40! You could double this effect with a 2x gold ETF, but again, you’ve doubled the possible profit AND risk loss. You can leverage your gains even more with options, a treacherous trading game whose odds are stacked far against you by evil manipulating monsters will millions of dollars of trading money at their fingertips.

5. What about real estate?

Ahh, we’ve hit a key question. In any way possible, investors should come to China to consider buying apartment properties in booming 2nd tier cities whose prices have not yet bubbled up. Cities like Suzhou and Shenyang come to mind. Buy properties surrounded by infrastructure (subways/roads, etc.) and commercial development(retail, office, government complexes, etc). Apartments in these areas are practically guaranteed to be worth 50-100% more two to four years later after all the construction projects are finished, with very very low downside risk and very very low carrying costs: ie no annual property taxes and very low monthly managements fees compared to the western markets.

On the U.S. real estate market, after substantial declines, prices look quite attractive, but there are two issues. First, it looks as if the real estate market in the U.S. has still not bottomed, so wait. Secondly, for investment purposes, real estate in the U.S. has much higher annual expenses/carrying costs which eat your profits, compared to the China real estate market.

6. Where should I put my cash?

If we agree that 100% of your money should not be long stock markets right now, then the question of where to put your cash comes up next. My answer is that your cash belongs in USD, AUD or RMB. Currency ETF’s make it easy to do this and a future article will look into this more deeply.

Read the original story at Mario Cavolo