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Ask our strategists a question

Is China going to be a problem?

We are indeed watching China with a close eye. They are the world’s second largest economy and a huge driver of growth. Their GDP growth slowed in 2012/2013 but that was not unexpected based on the double digit growth rates they had been reporting. But I am more concerned about their credit bubble. The government has made cursory attempts to slow down credit but the problem is growing and we may see trouble when these loans come due. So China may very well be a problem. This is one of the global risks we advise investors to watch in our Global Perspectives materials.

Do you believe that the VIX is a good indicator or the market's direction?

The VIX is often called the fear gauge and usually spikes when we see the market plummeting but I don’t think it is a good predictor of overall market direction. The driver of markets is fundamentals – namely corporate earnings. When earnings are growing year over year, markets will generally head upwards. We have seen very low volatility over the last couple years. I anticipate an increase in volatility as the Fed tapers and essentially hands control of the market back over to the market.

Do the emerging market, both equities and debt, still represent an opportunity for investors?

Emerging markets under-performed last year but over the last 10 years emerging market equities are actually the top performers and undoubtedly offer opportunity for investors. The good news is they are now available at a lower cost. More good news – U.S. companies are able to capitalize on the higher rates of growth in the emerging markets. In fact almost 50% of the revenue from the S&P 500 companies comes from overseas. Additionally, emerging markets, both stocks and bonds, not only offer long term return potential but also provide portfolio diversification.