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This Year's Triple-Digit Trade

By Dr. Steve Sjuggerud
Tuesday, January 6, 2009

When emerging markets get going, they can go nuts. I think 2009 could be one of those "nuts" years for emerging-market stocks...
 
When I started my career in 1993, I specialized in international stocks, particularly Asian stocks.
 
The "king" back then was a guy named Mark Mobius. He ran the Templeton Emerging Markets Fund (he still does). Check out some of the returns on Mobius' fund over the years:
 

1989

 

98.4%

 

1991

 

96.3%

 

1993

 

101.1%

 

2003

 

89.7%

 
 
 
Mobius just about doubled investors' money in four different years. In three of the four years before Mobius doubled his investors' money, his fund lost value.
 
Last year was the fund's worst year ever... It lost over half its value. Emerging-market stocks in general lost more than 50% last year. Now they're cheaper than ever. 
 
Importantly, they're cheaper today than they were before each of those near-triple-digit runs above.
 
When emerging-market stocks get cheap, they're usually on the brink of disaster. They've borrowed too much and then they have a massive currency crisis. But right now, emerging-market countries are in surprisingly good shape.
 
To show how cheap emerging markets are, and how much money you can make, take a look at this table of Hong Kong stocks I published in a recent issue of True Wealth:
 
12 months after Hong Kong bottoms, stocks gain an average 74%

 

 

1-year gain

 

P/E

 

P/B

 

Dividend

 

2008

 

?

 

6.4

 

1.0

 

6.1%

 

2003

 

52%

 

12.4

 

1.1

 

4.2%

 

1998

 

84%

 

7.1

 

0.9

 

5.8%

 

1995

 

55%

 

9.8

 

1.1

 

4.1%

 

1993

 

93%

 

11.0

 

1.1

 

4.0%

 

1989

 

48%

 

7.7

 

0.6

 

6.0%

 

1984

 

111%

 

6.0

 

0.8

 

8.1%

 

average

 

74%

 

8.6

 

1.0

 

5.5%

 
 
 
As you can see, in late 2008, Hong Kong stocks got as cheap as they've been in the last 25 years. Back in 1984, Hong Kong stocks were cheaper... and they rose over 100% in just 12 months.
 
It's time to get exposure to emerging-market stocks, if you don't already have it. Investors have doubled their money when the time was right.
 
It's happened before... and we have the conditions right now for it to happen again.
 
Good investing,
 
Steve
 




Market Notes


THE EMERGING-MARKET TRADE IS BREAKING OUT

Another note on the "long emerging markets" argument... we're seeing breakouts all over the place.

A "breakout" is a simple tool you can use to make a fortune trading stocks, currencies, and commodities. It's when an investment's price action changes course and goes from terrible to good... and it's often a great signal to buy a beaten-down asset. Let's take a look at the past year in the Brazilian ETF (EWZ) to see what one looks like.

Brazil is loaded with rich farmland, fresh water, iron mines, and oil deposits... so its stock market moves up and down with the price of commodities. It's also a speculative emerging market, so it got crushed last fall. It fell from $100 a share to $30 in just five months.

But as you can see from today's chart, Brazil is breaking out of the trading range it's been in since October. The selling pressure is exhausted. Shares are moving back up as buyers return to the market. It's not just Brazil... most emerging markets are behaving the same. This rebound trade is looking good!

Brazil iShares



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