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The market is near all-time highs, with the S&P 500 index up over 175% since its 2009 low. Billionaire David Einhorn believes we are amidst the second tech bubble in 15 years. Famed investor Jim Rogers isn’t sticking around to see whether the U.S. market collapses or not.
Rather, he’s looking overseas for investment opportunities. And he’s found two markets that are beaten up and unloved. So he’s selling the U.S. market and buying these hated markets.
Jim Rogers, along with billionaire George Soros, founded the Quantum Fund back in the early 1970s. He retired from Quantum in 1980 at the age of 37 and began travelling the world. Rogers is known for putting together informed opinions on world economies.
“Don’t follow the crowd” is one of Jim Rogers greatest nuggets of wisdom for investors. He’s definitely going against the crowd with his latest picks.
Jim Rogers Is Long China
Rogers has noted that China is down some 65% from its all-time highs. But what’s more enticing is the capital market reforms taking place there. Rogers is buying stocks in China for the first time in over half a decade.
He’s very invested in the fact that China is planning to liberalize its finance policies, including changing the limits on foreign investment.
For investors looking for U.S. stocks with exposure to China, there’s Yum! Brands (NYSE: YUM), Qualcomm (NASDAQ: QCOM),and Wynn Resorts (NASDAQ: WYNN). Both Yum! and Qualcomm get around half of their sales from China, while Wynn gets over 70% from the region.
One of the best ways to play these markets are ETFs. This will give investors a more diversified way to invest in these markets.
The largest China ETF is iShares China Large-Cap ETF (NYSEARCA: FXI). A couple of alternatives are iShares MSCI China ETF (NYSEARCA: MCHI) and SPDR S&P China ETF (NYSEARCA: GXC), but both are around a tenth the size of the iShares China Large-Cap ETF. The three largest holdings for each is China Construction Bank, Tencent Holdings, and China Mobile.
However, there is a big difference between the three that investors should take note of; their sector weightings vary widely. The iShares China Large-Cap ETF has 51% of its holdings invested in the finance sector, while the iShares MSCI China ETF and SPDR S&P China ETF only have around 30% invested in finance-related companies.
If you are investing in China for the same reasons that Rogers is, because China is opening up the finance aspect of its economy, then the iShares China Large-Cap ETF is your best bet.
Jim Rogers Is Long Russia
Russia is one of the most hated stock markets in the world. The crisis in Ukraine has only fueled the world’s hatred for this market. Russia’s top search engine, Yandex (NASDAQ: YNDX), is down 30% year-to-date, and one of its largest banks, Sberbank, is down nearly 25%.
Rogers’ thesis for buying stocks in Russia goes back to his motto of “buy when there is blood in the streets.”
For investors looking to get exposure to Russia, its oil and gas firms might be one of the safer options. The majority of Russia’s oil and gas is exported to Europe. Thus, the energy sector in Russia is one of the most defensive industries, versus financials. In the current economic environment, Russian banks are one of the riskiest investments in the region. Its banks rely heavily on the Russian economy.
The two key ETFs for Russia are Market Vector Russia ETF (NYSEARCA: RSX) and iShares MSCI Russia Capped Index (NYSEARCA: ERUS). Both ETFs have Gazprom, Lukoil and Sberbank as its top three holdings. They are both heavily weighted toward energy.
It just so happens that at the Sohn Investment Conference earlier this month, Jim Grant pitched Gazprom as a long idea. Gazprom is Russia’s largest natural gas producer and owns 17% of the world’s gas reserves. The Russian government owns half of the company and it’s well hated, trading at a P/E ratio of 2.4 based on this year’s earnings estimates. But Grant notes that the company’s operating margins are above 30% and all the bad news appears to be priced into the stock.
Digging deeper into the two Russian ETFs, it appears that the Market Vector’s ETF has a 43% weighting toward energy and 17% toward basic materials. A fairly robust weighting to two defensive sectors. However, the iShares MSCI Russia Capped Index is weighted 55% and 12% in energy and basic materials, respectively. Both pay a 3% distribution yield, but the iShares MSCI Russia Capped Index appears to have a greater weighting toward defensive sectors.
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There are still ways to get exposure to the China and Russian economies while keeping your risk in check. The first is ETFs, while the other is U.S. based companies that have operations in these countries. Jim Rogers is called a contrarian for a reason; his calls go against the grain and aren’t always popular, but they are always thought provoking.
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