While I can’t always respond to each of your questions directly, I do enjoy hearing from my readers and followers and value your feedback. I am quite delighted to see people from all over the world reaching out via my blog, Twitter and LinkedIn. As we wind down the year, I thought it would be a good time to respond to some reader questions.
Q: Respectfully, do you think diverging monetary policies—and likely increasingly fiscal policies—could be market stability game changers? – G. in Canada (via Twitter)
A: Yes, I agree. In the case of the United States, the election of Donald Trump as president means a much-expanded US budget appears likely, along with higher spending and higher interest rates, which could result in a different type of environment than we have seen in recent years. Despite the recent US dollar strength, we could actually see dollar weakness in light of Trump’s desire to make US industry more competitive globally. While the global markets are likely to remain volatile for a period of time given the uncertainty surrounding potential US policies under a Trump presidency, I would expect much of the rhetoric we heard on the campaign trail may not result in any concrete action. While the president cannot directly impact monetary policy, it appears from his rhetoric that Trump may put pressure on the Federal Reserve (Fed) to raise rates—which actually seemed to be the Fed’s likely path even before the election. We will be watching to see how global monetary and fiscal policies unfold not only in the United States but also in Europe and Asia. We could see many interesting ripple effects.
Q: In a recent blog, you make a good case for increasing allocations to small caps. But how do we build allocation in the space, given an under-researched domain now? – Arun in India (via the blog)
A: In the small- and mid-capitalization area within emerging markets, there are thousands of stocks to invest in, so we don’t think there should be any problem finding potential buying opportunities. The proviso is that investors need to do research since, as you say, there is not much research on those thousands of companies. That’s why I believe one needs to use a lot of “shoe leather” to investigate the managements of those companies. In my opinion, doing so could result in the discovery of terrific bargains. We view small-cap companies in Asia in particular as offering potential for strong growth, while market inefficiencies, in part due to a lack of research coverage, can provide attractive opportunities.
Q: Turkey has many problems. What do you think about Turkish stocks? Are you looking for investment opportunities in Turkey? – Turan in Turkey (via the blog)