Follow the money. Liquidity goes around the world looking for returns. Valuations usually play a part. To make good returns, one has to think like a fund manager. If you were one, where would you put your money? Obviously, the country with the highest dividends relative to its risk free rates, or the sector with the lowest valuation matrices.
I've come up with several countries / regions with very low valuation matrices, they are in descending order:
1. Russia
2. Latin America (Venezuela, Peru)
3. Middle East (Qatar)
4. China (HK listed)
5. Brazil
In terms of sectors, they are:
1. Mining
2. US banks (Citigroup)
3. US developers
Beware of buying commodity ETFs however. Their negative roll yield will eat into the returns. For example, if oil futures were to rise by 100%, oil ETF, e.g. USO will probably only rise by 50%... GO for energy stocks, mining stocks or commodity funds instead. The reason is a complex one. In a nut shell, ETFs buy the nearest to expire option, e.g. USO buys Jan 2011 expiry for oil at USD89. However, since ETFs cannot take physical delivery, they will have to sell their options at a predetermined date, e.g. on 17 Jan 2011. If all the oil ETFs sell at the same date, the price will fall on 17 Jan perhaps to 85. To roll over the next month, the ETF has to buy Feb 2011 expiry date, perhaps at 90. The loss is 5, the difference between Jan and Feb options. The difference is made greater by the fact that oil ETFs may all buy the Feb option at the same date, say 18 Jan 2011.
Fund managers take advantage of this by selling before the ETFs square off their options, and buying before the ETFs buy.
