The Bernanke Asset Bubble has officially gone global.
It started out as mostly a U.S. thing, as I explained earlier this month. But it’s quickly catching on around the globe.
Federal Reserve Chairman Ben Bernanke’s zero-percent interest-rate policy is killing savers. Yet, it’s creating an incredible opportunity to make a few times your money in a place you’ve probably never considered…
He’s also one of the true pioneers of emerging-markets investing.
Just over a week ago, he told readers that Hong Kong stocks have huge upside potential today.
I agree with Peter.
But I think today’s opportunity could be even better…
You see, because of a “quirk” in Hong Kong’s monetary system – and because Bernanke is keeping interest rates near zero – Hong Kong stocks should absolutely soar.
Our opportunity is crazy-good. Let me explain…
Hong Kong tends to take off whenever the Federal Reserve cuts short-term interest rates to an extreme low (relative to long-term interest rates). In three out of four cases, you would have made three times your money within three years when this happened.
The “why” of this opportunity is actually pretty simple…
Hong Kong made a brilliant move decades ago that essentially established the U.S. dollar as its de facto currency. To put it simply, Hong Kong does not use U.S. dollars – it uses the Hong Kong dollar. But the Hong Kong dollar is “pegged” to the U.S. dollar at a fixed exchange rate.
It was a good move because it has made free trade much easier in Hong Kong over the decades. You don’t have to worry about currency fluctuations or what a Hong Kong dollar is worth… everyone already knows.
Our opportunity comes from how this “peg” works… You see, Hong Kong maintains the peg through interest rates… Simply, if Hong Kong keeps its interest rates a bit higher than U.S. interest rates, demand for Hong Kong dollars is always strong. Hong Kong’s goal is to manipulate its interest rate in a way that keeps it in line with the U.S. dollar – where supply and demand are equal.
The one downside is Hong Kong gets stuck with the United States’ monetary policy. In other words, whatever Bernanke does affects Hong Kong, regardless of whether it is right for the city or not.
Right now, Bernanke’s zero-percent interest-rate policy is totally wrong for Hong Kong…
Unemployment in Hong Kong is extremely low, at 3%. And because of Bernanke, mortgage rates in Hong Kong are extremely low, at 2%, and should stay there for a few years. To me, this is a perfect recipe for a bubble in Hong Kong’s stock market…
So because Hong Kong is stuck with this interest-rate policy through mid-2015, Hong Kong stocks are about to go crazy.
You might think investors would have picked up on this. But they haven’t… Instead, they’ve been scared off by fears of a slowdown in China. The thing is, these fears are already priced in to the stocks…
Hong Kong is cheap today. According to the DataStream Hong Kong Index, Hong Kong stocks trade for just 12 times earnings. That’s 16% cheaper than U.S. stocks. And it’s 18% cheaper than Hong Kong’s long-term average price-to-earnings ratio.
We can buy into the Hong Kong stock market through the iShares MSCI Hong Kong Fund (EWH). This fund holds a basket of diversified Hong Kong companies.
In addition, shares of EWH are up 11% since the end of August. So the new uptrend is certainly in place.
This is exactly what I look for in an investment… Hong Kong is cheap and mostly ignored. Meanwhile, EWH continues to trend higher. And thanks to Bernanke’s zero-percent interest-rate policy, Hong Kong’s economy and stock market are on the verge of exploding.
Hong Kong soared 200%-plus three of the last four times the Federal Reserve cut rates this low. It could certainly happen again.
It is time to buy Hong Kong. Shares of EWH are the easiest way to make the trade. Before this is all over, gains of a few times your money are possible.