As I wrote last week, the central bankers of the world are staging a monetary arms race to see who can pump more liquidity into the world economy. ECB President Mario Draghi and Fed Chairman Ben Bernanke have each taken turns upstaging the other.
Now, it’s Japan’s turn. The world’s third-most-powerful central bank has joined the fight, launching a fresh round of monetary stimulus of its own. The Bank of Japan is expanding its asset purchase scheme by another 10 trillion yen to a full 80 trillion—or about $1.02 trillion in US dollars.
I don’t expect this to be the last shot fired. The ever quotable Guido Mantega, Brazil’s finance minister, has reiterated his claim that the world is in a “currency war.” He’s also made it clear that Brazil does not plan on losing it, meaning that Brazil will resort to loose monetary policies too in order to prevent Brazil’s currency from getting unmanageably expensive.
What does any of this mean for investors? In an interview with the Financial Times this week, Mantega said that “risk aversion had fallen and animal spirits have increased.”
I couldn’t have said it better myself. Until the market shows any real signs of weakening, I recommend that investors maintain an aggressive portfolio. And right now, this would include frontier markets such as Africa and the Middle East. I recommend investors pick up shares of the Market Vectors Africa Index ETF ($AFK) and plan to hold for the remainder of 2012. As always, use a stop loss that is appropriate for your risk tolerance.
This piece originally appeared on Trader Planet.