BIG IDEA: HOW DO YOU ADD DIVERSITY TO YOUR
TRADING PORTFOLIO? EXPAND YOUR HORIZONS BY
KEEPING AN EYE ON GLOBAL STOCKS.
INDUSTRY SPOTLIGHT • SEASONED
• AS AN OP TION TRADER, how many potential opportunities can you track at once?
It’s a balance. Too many, and you likely won’t
make good decisions. Too few, and you may
miss out. That balance is also shaped by
what you’re watching. If you’re focused on a
particular sector or a handful of your favorite stocks, there may be long periods when
you won’t trade. If you’d like to broaden your
focus, possibly consider global stocks.
RE-EMERGE YOUR POR TFOLIO
There are many categories under the “global
stocks” umbrella. One that’s often ignored
is emerging markets (EMs)—i.e., countries
with stable growth potential. EM stocks
sometimes get a bad rap because they have
a reputation for being cheap. EMs may be
unfamiliar territory. But you don’t have to
know everything about a specific country or
region’s economy to get started. Consider
three relevant areas: overall economy, cur-
rency valuations, and interest rates.
Overall economy. When the U. S. econo-
my does well, EMs sometimes suffer. And
when the U.S. economy is in a decline, EMs
might still suffer. During most of 2018, the
MSCI Emerging Markets Index, a bench-
mark for EM performance, was in a bearish
trend. The U.S. economy was growing, and
EM countries with overvalued currencies
and expanded economies got crushed. The
overall impact? Several EM currencies hit
multiyear lows, especially Russia, Mexico,
Argentina, and Turkey.
Currency valuations. The value of the
U. S. dollar can be a driver of global financial
conditions. In particular, it can impact commodity prices, which is key for many EMs.
For example, if oil prices rally while the U.S.
any country that
imports oil might
feel the pain. This
will be reflected in its
often tighten, and
the country could
Interest rates. The Fed raised interest
rates in the U.S. four times in 2018 because
of economic expansion. It then reversed
that decision, reassuring investors that
inflation was tame and that the Fed would
be cautious before raising rates even more.
This was good news for EMs of economically stable countries with depressed
currency valuations. It meant there was
potential for their currency values to rise.
THE OVERALL ECONOMY, CURRENCY
valuations, and interest rates are related
and should be analyzed together. Looking
at any one of these components independently may not give you the whole
picture. It’s also worth keeping an eye on
the U.S.–China trade talks. Tense trade
talks don’t bode well for any country. But if
they’re subdued, there’s a chance for lower
tariffs, which could be encouraging for
EMs. —Words by JAYANTHI GOPALAKRISHNAN
Jayanthi Gopalakrishnan is not a representative
of TD Ameritrade, Inc. The material, views, and
opinions expressed in this article are solely those
of the author and may not be reflective of those
held by TD Ameritrade, Inc.
Investments in foreign securities, especially
emerging markets, involve special risks, including
currency fluctuations and political and economic
What are some
Source: International Monetary Fund