I believe the growth period in the US is about to end. There are two primary reasons for that – positive media frenzy on one hand, and ominous looking patterns on the other. So let’s go about the first one.
Whenever media gets crazy about investing, that means the cycle is about to end. I’ve seen many overly optimistic news stories in the last few days, as well as an occasional one warning of an imminent crash. Overall, I believe that such a combination is indicative of a downturn.
The second one is, of course, technical. But it’s composed of many different signals which all point to the same thing. They are, in no specific order, a very long growth phase, broadening top, and bearish divergence.
Now, even though the market may continue upward still, I believe the chances of it really doing so are slim. And this is precisely the reason why I believe investing in Croatian market is currently a better idea. It has never made as strong a recovery, and consequentially the stocks are much cheaper. Now, while it is true that a renewed global recession may bring it down even further, culminating in a double bottom from 2009, I don’t consider that to be the most likely scenario. The first reason for that is the fact that Croatian citizens have stored vast amounts of cash which is about to get taxed. The second reason is the fact that mutual and retirement funds are too heavy on bonds, which means that they are likely to rearrange their portfolios as soon as they see the market starting to rise. Finally, even if the market does make a W (quite possible in case of state bankruptcy), I think it is likely to rebound soon. The reason for that is the fact that many of the stocks are quite cheap already, so it’s simply hard to believe they’ll go even cheaper and stay that way forever. Yes, some companies may falter and go bankrupt, such as the ones I’ve mentioned on occasion, but others are unlikely to experience any sort of downturn. ZVZD is, again, a great example of such a stock. It’s basically making its money on low cost food items, and those are basically the epitome of inflexible demand. Yes, the margins may suffer and the profitability may go to zero, but it’s just extremely unlikely that such a company will go bankrupt even in the worst case scenario.
So to make long story short, I believe the US market is ripe for selling, which means investors will need to find new business opportunities. And Croatian market may just be one of them.