Why Investing Abroad Makes Sense - TheStreet



) -- As the U.S. economy continues to struggle, consumer spending remains weak, consumer confidence is fragile and the labor markets try to get a boost, investing abroad makes sense and for good reason.

Most recently, the Institute for Supply Management released an index of non-manufacturing U.S. businesses that indicated the U.S. service industry is in contraction mode. Contraction has primarily been driven by concerns that weak employment numbers and fears over job security have consumers worried, which will curtail consumer spending and eventually hurt revenues. This notion has been further supported by earnings reports released by retail giants





(M) - Get Report

, which both missed analysts' expectations and failed to get the Black Friday boost that was expected.

On the positive side, many economists expect the U.S. economy to stabilize and actually show signs of growth in 2010. In fact, U.S. GDP is expected to expand by 2.6% in 2010, but this is a far cry from the growth rates of 7% and higher that are expected in many emerging Asian and Latin American nations.

In addition to an attractive GDP growth rate, other favorable characteristics of these emerging economies include growth in labor forces, increases in technology that have helped improve efficiency, growth in industrial production and the emergence of trade agreements.

Lastly, these economies are favorable, due to the fact that their financial systems were not bogged down by the global meltdown and stuck to stable growth strategies as opposed to dabbling in derivative strategies that banks in the developed world did. These financial systems were also able to keep some of their strength due to strict banking regulations imposed by their governments, high deposit to loan ratios and strong capital adequacy ratios.

Some equities to watch include:

  • The iShares MSCI Emerging Markets (EEM) - Get Report, which is a good, diverse way to gain exposure to China, South Korea, Brazil and Taiwan. EEM has more than doubled from its March low of $19.94 to close at $41.84 on Friday.
  • The iShares S&P Latin America (ILF) - Get Report, which gives exposure to Brazil, Chile and Mexico. ILF is up 127% from its March low of $21.64 to close at $48.75 on Friday.
  • The SPDR S&P Emerging Asia Pacific (GMF) - Get Report, which gives exposure to China, Taiwan, India and Malaysia. GMF is up 107% from its March low of $35.77 to close at $74.20 on Friday.

Although emerging markets are expected to keep their strength through 2010, they come with inherent risks and volatility and a good way to mitigate these is through an exit strategy. According to the latest data from www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: EEM at $39.98; ILF at $46.97; GMF at $70.61. These price points change on a daily basis to reflect market conditions; updated data can be found at www.SmartStops.net.

Written By Kevin Grewal in Laguna Niguel, Calif.

At the time this article was written, Grewal held no positions in the mentioned equities.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.