Several indicators are pointing towards a sustained rally in emerging markets, while the U.S. dollar gets “wrecked,” according to Michael Gayed, Portfolio Manager at the Tidal Financial Group and Author of the Lead-Lag Report. Gayed has almost two decades of experience in finance and has launched multiple mutual funds and ETFs.
“The dollar is no longer the best inflation hedge,” he said. “A weak dollar would also be supportive of emerging markets.”
The U.S. Dollar Index (DXY) rose by 7.5 percent over the 2022 calendar year, beating assets like gold, which is traditionally considered an inflation hedge.
Gayed suggested that investors shift their “mindset” towards considering emerging markets, instead of only committing their funds toward U.S. investments.
“If you look at a lot of the emerging market ETFs, a lot of them don’t have tech,” he observed. “A lot of them are actually value sectors. Anybody argues that value is going to outperform growth is making an argument for emerging markets. Anybody that argues that commodities are going to outperform stocks is making an argument for emerging markets. Anybody that’s going to argue that energy would outperform tech is making an argument for emerging markets.”
Gayed spoke with David Lin, Anchor and Producer at Kitco News.
Emerging Market Investing
Long-term investors need to look at emerging markets if they wish to earn a good return, said Gayed. He argued that U.S. stocks would decline due to more restrictive Federal Reserve policy.
“The last decade has been dominated by U.S. large caps… because of QE3 [Quantitative Easing 3] and zero-interest-rate policy, both of which are now gone,” he observed. “So, if you’re really going to be forced to buy stocks, sometimes the best thing to do is to go into the biggest laggard, which really is what emerging markets are.”
Gayed claimed that QE3 and loose monetary policy since 2012 had made the U.S. “the most attractive place to be because it suppressed all volatility and risk [in markets.]”
In 2022, the Fed hiked interest rates by 425 basis points in an effort to control high inflation, which reached a peak of 9.1 percent in June. Gayed said that these rate hikes would cause capital to flee the United States. In particular, he said that China and India are good options for investors.
“If you really want to get creative, then China is probably the place to be,” he said. “Having said that, there are a lot of other emerging markets you can argue for, like India and a lot of Latin America.”
To find out Gayed’s outlook for tech stocks, watch the video above
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