| | | | | Saturday, August 29, 2015 | |
|
Eric Fry, wondering just how high a dead cat can bounce, reports...
While we investors here in the U.S. have been wringing our hands and furrowing our brows over the "big" sell-off that has been taking place over the last couple of weeks, emerging market investors have been sweating bullets over the really big sell-offs taking place in many of the world's smaller stock markets.
China's epic stock market implosion, for example, has erased more than 40% of the Shanghai Composite's market value. And this misery has attracted plenty of company. The list of foreign stock markets that have tumbled more than 25% from their recent highs (in U.S. dollar terms) includes Hong Kong, Taiwan, Indonesia, Brazil, Chile, Peru, Colombia, Greece, Russia, Egypt, Kazakhstan and... well... you get the idea.
Clearly, the last few weeks have not been particularly pleasant for emerging market investors. And who knows if this sell-off has run its course?
The only item that is certain is that emerging market stocks, collectively, are about 30% cheaper than they were four months ago, which is cheap enough to entice my colleague Karim Rahemtulla to recommend tiptoeing into them. Many emerging market stocks are "on sale," he says... and it would be hard to argue with him.
The MSCI emerging markets Index has gone absolutely nowhere for the last six years - a time frame during which the S&P 500 Index has doubled. As a result of these divergent fates, the valuation of emerging market stocks relative to U.S. stocks is near the lowest levels of the last six years.
Obviously, emerging market stocks could continue to fall and, in the process of falling, become even cheaper relative to U.S. stocks. But Karim believes Emerging Market stocks have become a very compelling speculation at their current quotes.
He explains his thinking in the column below...
It's Emerging Markets Time... Again
There are few classes of stock more out of favor than emerging market stocks. As you can see in the chart below, sentiment toward investing in emerging markets is at levels not seen in a decade... maybe not since the Asian currency crisis that began in 1997. I was there when it all shook out.
It was July 1 and I was perched atop the Hong Kong Stock Exchange building overlooking the harbor. I selected this vantage point to watch the ceremony that would transfer Hong Kong from British rule back to the Chinese.
It had been pouring rain all day. But then, just as the ceremony was about to begin, something extraordinary happened. The skies cleared. Within an hour I was watching a massive display of fireworks as the ceremony came to a close. But an hour later, I was rushing back to my hotel... through the pouring rain.
The next morning, the Thai baht began its collapse. The Thai stock market followed. Within a few days the Indonesian rupiah collapsed. The Indonesian market followed. Like dominoes, the entire region, including Hong Kong, saw a rout like never before. Asian currencies and stock markets were plummeting in tandem.
The Chinese came to the rescue and propped up the Hong Kong market by buying stocks hand-over-fist - much like they did recently with their own market. But, the other markets in the region fared much worse. When it was all said and done, I was buying Indonesian assets for $0.30 on the dollar.
I often tell investors that emerging markets are not for the faint of heart. But when it comes to trading on panic sell-offs, there are few investments that can return as much in as short a time period.
Most emerging markets are very illiquid. They are minuscule in size compared to U.S. markets. In fact, Brazil's stock market capitalization is less than the market capitalization of Apple (Nasdaq: AAPL). Singapore's market value is smaller than Google's (Nasdaq: GOOG), Thailand's is smaller than Microsoft's (Nasdaq: MSFT) and Chile's is smaller than General Electric's (NYSE: GE). Because of the low level of liquidity in these markets, small amounts of buying or selling can sometimes produce huge price moves.
Right now, emerging markets are going through that panic phase. It may last a few weeks or a few months. Their currencies are collapsing again, but this time it's not from the weight of debt - it's from the weight of competition from China.
Emerging markets in Asia are in competition to export goods and import capital. When their currencies are too expensive relative to the Chinese yuan, then the competitive edge goes to China. So in order to gain an upper hand against China, they have to devalue their currencies, and that is what is happening. Add to this a commodities crunch and a global slowdown and you have the makings for a major meltdown. We are in the late stages of that meltdown now.
I will be making a trip to the region in November and I can tell you now, prices are plummeting for local goods and services. I just booked a five-star hotel in Kuala Lumpur for less than I would pay for a Holiday Inn in a major U.S. city... breakfast included.
Places like Kuala Lumpur, Bangkok, Hanoi and even Singapore are on sale. It's time to set aside some funds and get yourself ready to invest beyond the dollar - and maybe a little beyond your comfort zone.
The dollar is king right now, but what's undeniable is that global growth and massive wealth creation will occur in Asia in the decades to come. And this crisis may be providing a great opportunity to take advantage of that trend.
Good investing,
Karim Rahemtulla
For The Non-Dollar Report
The Results Are In...
Matthew Carr's Prime System has only been live for a year. But the results so far have been stunning.
He closed out a gain of 669%... One of the biggest of his career. He followed that up by closing out gains of 200%, 212% and 174% all in one day!
Then, he knocked it out of the park with a 1,888% stunner... The biggest gain in Oxford Club history.
To find out how a strange anomaly in certain companies' earnings reports has led to these gains, simply take a look at Matthew's free presentation here.
| |
|
|
| |
|
RECENT ARTICLES
| |
Some companies are being hurt so much by falling oil prices that their dividends are in danger... but not all. Read On... | |
|
| |
On average, not including 2008, the S&P 500 rose 16% during the six months following a 45-reading, without falling more than an average of 4% en route to those gains. In other words, a 45-reading on the VIX has been a pretty darn good "Buy" signal... most of the time. Read On... | |
|
| |
During the last four years, the financial markets have presented compelling evidence that silver is only for selling. But a couple of contrarian voices believe the gold-silver ratio signals a buy. Read On... | |
|
|
|
|
No comments:
Post a Comment
Keep a civil tongue.