China: Largest Untapped Market in the World

August 7, 2008

On Tuesday, the market soared over 330 points when the Federal Reserve decided not to raise interest rates. Though keeping rates steady was good news, the real catalyst for the big move was the Fed's statement after the meeting. Wall Street felt the statement implied the Fed won't raise rates for the rest of the year, and that was all traders needed to push prices higher.

The Fed said, "Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth." I used to work for the Fed and I can tell you that their statements are purposely written in a way to convey as little meaning possible. This time around, however, the message rings loud and clear: The Fed thinks the rate cuts it has already made will work and it's going to wait and see the results.

Financials Flounder and Unemployment is Up

Even though Wall Street was surprised and delighted by the Fed's decision to hold rates steady, I can't say it surprised me. The credit market is still in shambles–just take a look around! Yesterday, Freddie Mac (FRE) announced its fourth straight quarterly loss, and its dividend is going to be slashed by at least 80%. Today, shares of American International Group (AIG) had their worst day in over 25 years! Over the last three quarters, the company has lost over $18 billion, and in the past year, the stock is down 92%. Ouch! Not surprisingly, both Freddie and AIG are rated F by PortfolioGrader Pro, my FREE stock rating tool. Also, Wal-Mart (WMT) just reported sluggish sales for July, which probably reflects the end of the effects of the economic stimulus checks.

Trouble also plagues the U.S. job market. The government announced today that unemployment claims rose to a six-year high. The unemployment rate has risen 0.7% in the past three months, which is the fastest increase in 26 years.

The Outlook is Brighter in the East

Despite the troubled U.S. economy, there are still plenty of opportunities for investors. If you're a little brave and a lot smart, you'll look outside U.S. borders for portfolio growth. It's true, one of the best ways to diversify a portfolio is by holding fundamentally superior stocks based in emerging markets. That's why in this week's issue of What's Working on Wall Street Now, I want to focus on China and highlight some the great investment opportunities this emerging economic giant has to offer...