It's a beautiful world. Sound crazy? It's not. What's crazy is fearing debt woes in the five little PIIGSys will stop the 2010 share bull market. Three months ago, PIIGS [Portugal, Italy, Ireland, Greece and Spain] was just another word for bacon. No one fretted their debt - now it's non-stop.
Yet very little changed in the interim - except their economies have actually grown. And, Greece just had a very successful debt auction! Portugal and Greece - the scariest PIIGS - are just 1% of world GDP, and the PIIGS together aren't much bigger. The rest of the world grows - including Britain, whose fourth-quarter 2009 was just revised up - and the bigger pulls the smaller along, not the reverse, so the PIIGs will keep growing.
One recipe for a bull market is negative sentiment with overall positive fundamentals - exactly what we have in 2010. What are those fundamentals? First: History shows when you get a huge market tumble followed by a big, 12-month market recovery, the next 12 months are overwhelmingly, above-average positive. That second 12 months starts now - March 2010. Bullish.
Second: Emerging markets' growth. So far, South Korea and India are the only emerging markets to miss fourth-quarter GDP estimates. (And they still both grew 6% year over year! Britain would love to miss growth estimates like that.) The rest - Taiwan, Mexico, South Africa, Thailand, Malaysia, China, Hong Kong, Russia, Indonesia - all beat estimates. Together, emerging markets are 25% of world GDP - more than America, and a hair less than the EU. They more than offset any PIIGS woes. And that likely continues - now many emerging markets are moving into annual per capita income levels that trigger big spending increases - accelerating growth, which increases total global growth. Bullish.
Third: Rising business spending. Folk moan that personal spending fell big in the recession. Wrong - it didn't. Developed world spending is more stable than most think - it actually rose as a percent of GDP, which is normal. But business spending did fall huge, and like shares, here, categories that fall most usually bounce most in recovery. Firms globally are super lean and productive because of cost-cutting. With growth returning, they're restocking bare shelves and warehouses, which increases demand and production. And because firms are so lean, even a small sales pick-up means big earnings gains - that look even bigger compared to 2009's meagre results. Plus, non-bank firms have historically record-breaking cash balances, primed for future investments. Bullish.
Fourth: Share earnings yields globally are well above bond yields. Historically, shares are cheap with room to run. Bullish.
Fifth: Monetary and fiscal stimulus are still pushing shares higher. Some nations are pulling back some emergency monetary stimulus, but globally, central banks are still historically loose - bullish. And there's big fiscal stimulus money yet to be spent. America has spent just a third of its plans. Other nations have spent more, but together, there's lots of stimulus still coming. Bullish.
Sixth: Sentiment is black. You know it's terrible - you feel it and see it. You don't hear good news - not much. Instead, all news is either cast as bad, or something soon to morph to bad. That isn't confirmation the world is bad - it's the proverbial wall of worry shares love to climb - the opposite of euphoria seen normally at bull market tops and very bullish.
End your gloom, and be bullish too.
Start with shares like these:
Advertising expenditures rise faster than national income as less-developed nations catch up. One way to benefit is through Central European Media Enterprises, a creator and operator of television stations that from its base in the Czech Republic reaches seven eastern European countries and 90 million viewers. Crunched by the recession, it now operates just below break-even. But growth and margin expansion will fix that. You're paying 10 times my forecast of 2011 earnings.
Telecom Italia is Italy's dominant phone provider, spanning fixed lines, cellular and Internet. At home it's a cash cow. Abroad it's growing, with a huge cellular operation in South America and three million Internet customers in Europe outside Italy. It's too cheap at 40% of annual revenue, 60% of book value and six times my estimate of 2010 earnings. Its trailing dividend yield is 5.8%.
If you prefer a purer play in growth markets, try Korea's SK Telecom, which at 23 million cellular subscribers has half Korea's growing market as well as operations in Vietnam, Mongolia and China. It sells at nine times 2010 earnings and 90% of revenue.
Finally, always own a few stocks that might not excel in a hot market, but will hold up in a cool one. Australia's container and packaging giant Amcor fits the bill. Even if the global economy isn't as vibrant in 2011 as I foresee, Amcor should do fine. It sells at 12 times likely 2010 earnings and 60% of annual revenue. It has a 4.9% trailing dividend yield.