My 6 New Money Plays
If you could pick one — just one — indicator to help you accurately forecast the direction of the stock market, which one would you choose?
I’m willing to bet many of my readers would say the “Buffett Indicator.” This indicator is the total market capitalization of U.S. stocks relative to the size of our entire economy, measured by GDP.
If you follow this indicator closely, you should be scared witless. The Buffett Indicator is now screaming “overvalued” at the top of its lungs.
However, Buffett isn’t listening to his own advice, because Berkshire Hathaway has been putting new money into the stock market, not fleeing it.
That’s why I don’t bet all my chips on any one indicator, but if I had to choose one, I think the direction — up or down — of the size of a country’s middle-class is the best.
With all the talk about millennials living in their parents’ basements, you might be surprised to learn the world is experiencing a population explosion in the middle-class.
About 3.7 billion people, or 48% of the world’s population, is now considered to be middle-class. The Brookings Institute expects another 140–170 million more people to move into middle-class status by 2020.
This would bring the global middle-class population to 50% of the total.
The Brookings Institute defines middle-class as earning enough money to be able to afford the basics of food, clothing and shelter while also having enough money for some luxuries like a TV or cellphone.
Source: Brookings Institute
Most importantly, a larger middle-class means fewer people living in poverty.
As recently as 1970, 60% of the world lived in extreme poverty. But by 2015, it was down to only 9.6%, according to the World Bank.
Source: World Bank
Of course, where you live in the world today has a great impact on how much money you need to make to afford a middle-class lifestyle.
For example, a $12,000 household income would qualify as middle-class in Indonesia, but it takes $59,000 to be middle class in the U.S.
Someone with a $59,000 income would be considered wealthy from a global perspective because that qualifies for the top 9% in the entire world.
But what countries are enjoying the fastest middle-class growth?
The global surge in middle-class growth is driven largely by a middle-class explosion in India and China, two countries that I expect to deliver stellar stock market returns long term, despite recent downswings in emerging markets.
The reason is simple…
More middle-class consumers mean more spending on cars, houses, food, clothes and electronics. That means more GDP growth and corporate profit growth.
What’s the best way to invest in India and China?
To keep it simple, you could go the ETF route. Here’s six money plays I like right now:
iShares MSCI India ETF (INDA)
iShares MSCI India Small-Cap ETF (SMIN)
Columbia India Infrastructure ETF (INXX)
iShares China Large-Cap ETF (FXI)
Global X China Consumer ETF (CHIQ)
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR)
Any one of these ETFs will help you latch onto the wave of profits we should soon see from the exploding middle-classes in China and India.
I wholly expect this growth trend will send their stock markets much, much higher in the years to come.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch