Public companies that make their money from developing markets have had two good runs in my investing lifetime. From 2001 until 2008 — that is, from the dot-com crash to the housing bubble — they were on fire. Entire indexes were up 600%–700%.
Then, after the 2009 crash when China started buying up the world’s commodities, we had the “supercycle” bubble. If you remember, oil ran to $144 a barrel, junior gold miners jumped 3,000%, and uranium stocks went up 1,000%.
Here is a chart of the popular iShares MSCI Emerging Markets ETF (NYSE: EEM).
As you can see, we’ve been consolidating in a rising wedge pattern for about 15 years.
Here is the emerging-market chart on a longer-term log scale, courtesy of Global Macro Investor.
This shows your trend lines. As you can see, we are due for a big bounce higher from the bottom trend line. The consolidation from 2004–2020 is known as a coiled spring. Once the share price breaks out to new highs, these patterns tend to go up as much as they’ve gone sideways.
You’ll see a similar consolidation pattern from 1957–1968 before the breakout in 1969 and the big move higher until 1981. That same period (the 1970s) produced poor performance in U.S.-based stocks.
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Here is a chart showing the relative value of the S&P 500 versus emerging markets.
Emerging-market stocks are cheaper now than at any other time going back to the mid-1960s.
You Could Buy the ETFs
The three most popular exchange-traded funds (ETFs) are iShares Core MSCI Emerging Markets ETF (NYSE: IEMG), Vanguard FTSE Emerging Markets Index Fund ETF Shares (NYSE: VWO), and iShares MSCI Emerging Markets ETF (NYSE: EEM).
Vanguard has the best expense ratio of the three. IEMG has the highest dividend at 3.07%, but the other two are similar.
The problem with these ETFs is that they have 40%–50% exposure to China and another hefty chunk to South Korea and Taiwan.
If you dig out singular stocks, you could do a lot better.
Last week I recommended the “Verizon of Africa” in my trading service Launchpad Trader. It pays an 8.32% dividend yield, has a price-to-earnings of 7.5, and grew those earnings at over 165% last year.
Did you know that 7 of the 10 fastest-growing economies are in Africa and that the average age of the population is 19? According to the IMF, there will be a 6% GDP increase across the African continent this year.
The future is hard to predict and no one knows how well this stock will do. That said, it is always a good idea to put your money in front of value and growth. I bet over the next three years it will perform better than Tesla (NASDAQ: TSLA), which has a P/E of 1,110 and trades at 35 times book value with the bad margins of a retail company (1.97%).
I’m calling it now. Mark December 1, 2020, on your calendar. It’s time to put some money in emerging markets.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
