Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search

This Developed Country Is Trading at Emerging-Market Prices

By Tom Dyson, publisher, The Palm Beach Letter
Wednesday, January 14, 2009

 

I jumped in the taxi and told the driver to take me to my hotel. He waved at me and told me to be patient. He was watching television.

The flat-screen TV was on the passenger side of his cab, near the glove compartment. The Olympics was on. He was watching a ping-pong game. I sat back and watched the final points with him. The South Korean team won. He clapped his hands in celebration and then pulled away from the curb...

South Korea is the most "wired" country in the world. It has Internet on trains, on buses, and in taxis. It's always free. Hotels put computers in every room. And 93% of South Korean households receive broadband... the highest penetration in the world. I visited South Korea this summer. I saw people watching the Olympics on their cell phones.


Infrastructure in South Korea is excellent. The trains and buses run so frequently, you never have to wait. The roads are smooth and fast. Buildings are modern. The streets are clean.

South Korea is already the world leader in semiconductors, digital displays, and consumer electronics. Now it wants to rule the robotics industry. I took a tour of a massive planned city near Seoul. It's the largest continuous real estate development in the world. Robot Land is one of the large "neighborhoods" the developers are building in this city. They want to entice robotics factories to locate there.

South Korea is a developed country. Thirty years ago, South Korea was poor. Newsletter writer Marc Faber tells the story of his early career in Asia in the most recent issue of the Gloom Boom & Doom Report. South Korea was one of his first investments. "In the 1970s, South Korea was still ruled by the military and was extremely poor. Curfews were in place and there were no foreign investors."

South Korea's economy has come a long way since the 1970s. The average South Korean has more wealth, freedom, and education. But what about South Korea's stock market? The South Korean headline stock index is called the KOSPI. The KOSPI was at 1,000 in April 1989. It was still at 1,000 in November 2008... before falling below 900.

I prefer to look at long-term charts that have been adjusted for inflation. When you adjust for inflation, you strip out the general rise in prices and see the true returns attributable to the stock market. When you adjust South Korea's stock market for inflation, you see that an investor who bought stocks in the 1970s still hasn't made a penny of return today.

It's the same way with Japan and Taiwan. Taiwan's stock market recently touched 1987 levels. And Japan's stock market recently touched 1981 levels. These countries are all far richer, more developed, and more sophisticated... But their stock markets haven't made any money for investors in over 30 years.

I don't like most mainstream U.S. stock market investments. They don't pay big enough dividend yields. And with all the regulation and government intervention, America's productivity will decline. The "Obama rally" could last a year or more, but sooner or later, we're going to break 800 on the S&P again.

If I had to invest in stocks, I'd buy Taiwan and South Korean stocks. Their economies may be in recession and they may depend on the rest of the world to buy their technology, but at least their stock markets are wickedly cheap.

The South Korean stock market sells for 11 times earnings and trades at a discount to book value. The Taiwan stock market sells for nine times earnings and trades for only 1.3 times book. Plus, the Korean won has depreciated by 35% in the last six months and the Taiwan dollar by 10%... so American investors get an even better deal.

I particularly like Taiwan stocks. They pay an 8% dividend yield, and all the top Taiwanese companies have billions in cash and no net debt. The next bull market in Asian stocks may take a few years to materialize, but at least you'll be paid while you wait...

The easiest way to invest in South Korea and Taiwan is through the exchange-traded funds (ETFs). The South Korea Index ETF symbol is EWY. The Taiwan Index ETF symbol is EWT.


Good investing,

Tom

 





Market Notes


THE STOCK MARKET HAS SOME CONVINCING TO DO


We're putting the stock market on "volume watch" this week.

When you have bullish bets on stocks, you want to see lots of trading volume on days of big market gains. Heavy "buying interest" supports your thesis that the market is due to rise.

Although stocks are a bit higher than November levels, today's chart shows the "big money" isn't interested in stocks just yet. The bars at the bottom mark trading volume in SPY, a fund that tracks the S&P 500. Red bars are the volume on down days. Black bars are the volume on up days. The taller the bar, the greater the trading volume.

As you can see from the area marked A, selling volume was huge during October's big decline. Volume tailed off during the holiday break (marked B). But now, even though Wall Street has returned to work, volume in January (marked C) is weak and unconvincing.

If stocks are going to rebound in 2009, they're not going to do it on the backs of a few bullish investors with $20,000 portfolios. They're going to rebound if pension-fund managers and mutual-fund managers put their $20 billion portfolios to work. If these "elephants" return as big buyers of stocks, we'll see it in rising stock prices and robust trading volume. Until we see those tall black bars, this rally remains unconvincing.



Recent Articles


  • These Inflation Numbers Might Shock You
    By Dr. David Eifrig
    Wednesday, October 22, 2014

    The boogeyman of inflation is nowhere to be seen... so don't get scared out of solid investments...

  • A NEAR-PERFECT Investing Portfolio
    By Dr. Steve Sjuggerud
    Tuesday, October 21, 2014

    Today, I'll share with you an incredibly simple portfolio. One that has been nearly infallible for four decades...

  • Quit Your Complainin' – Instead, Take Advantage of This
    By Dr. Steve Sjuggerud
    Monday, October 20, 2014

    Be bold. Be contrarian. Step up. Chances are good you'll be glad you did...

  • How to Make a Fortune in Resource Stocks… Starting Today
    By Dan Ferris
    Friday, October 17, 2014

    Today, resource stocks are some of the best bargains in the world... But the average investor tends to be scared when stocks are at their most attractive valuations. He sells at the moment when he should buy...

  • The U.S. Dollar Just Peaked
    By Dr. Steve Sjuggerud
    Thursday, October 16, 2014

    Yesterday, risky assets tanked... and "safe haven" assets soared. But one traditional safe-haven asset didn't follow the script...