It’s time to get back into emerging markets.
Over the past five years, emerging markets have done a lot of nothing. If you look at the most popular ETF, MSCI Emerging Markets (NYSE: EEM), you will notice that the share price has been in a tight range for about five years now.
Obviously, the move during the long global recession has been in U.S. stocks, which more than doubled over the past five years.
That said, every dog has his day, and things are starting to change. Over the past five weeks, money has been flowing into emerging market funds. About $3.3 million flowed into the three most popular emerging market ETFs last week alone.
The other two are the Vanguard FTSE Emerging Market ETF (NYSE: VWO) and iShares JPMorgan USD EmergingMarkets Bond (NYSE: EMB).
Monster Bet
According to OptionMonster, someone is betting big on EEM. A block of 10,000 December 41 calls were purchased for $2.57, and 10,000 December 36 puts were sold for $1.20.
The move is easily explained. The P/E ratio of EEM is 11. The P/E ratio of the S&P 500 is 19.4.
As the fast money has moved down the value chain and pushed up all U.S. stocks including biotechs and penny stocks, it is looking for more value in emerging markets.
Furthermore, emerging markets are starting to look more stable. The great currency crisis that was going to happen over the winter did not. Egypt was the best-performing market of 2013, and Indonesia and India are also doing well.
Now, Wall Street fund managers and their ilk are looking to increase their returns by taking on more risk. We will follow them and get in before the great unwashed masses.
Last week, I told my readers in Crisis and Opportunity to buy EEM, saying:
“Buy EEM under $41.60. It is currently trading at $41.51. That five year sideways market is a heck of a ‘coiled spring.’ Once it breaks out of the range, it could double in the course of a year. And like I said, it’s cheap. It is trading below average sales at 0.99 and just 1.32 times book.”
We are up a few points this week, but given the brutal sell-off of the U.S. market, just being up rather than down is a good thing.
On Friday, I’ll be telling Crisis and Opportunity readers about the fallout of the China/Vietnam struggle over oil in the South China Sea.
In case you missed it, Chinese ships have been ramming Vietnamese vessels trying to stop China from putting an oil rig in disputed waters.
While the world is looking at Ukraine and Putin, Beijing is getting aggressive in its quest for oil. There will be winners and losers. Those with foresight will profit handsomely. More later…
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.
