Tuesday, August 24, 2004
In 1994, my income fell by half...
I was a broker back in January of 1994... when investors got scared out of emerging markets, particularly Asia. As a broker who specialized in international stocks and bonds, I couldn't have been in a worse place at a worse time.
The bad times started right away. Hong Kong stocks, for example, tanked by 20% in the first few weeks of 1994, and my phone stopped ringing completely - for a very long time.
I learned the pattern of emerging markets... they double, then fall in half, then double, then halve... It's not like clockwork. But they do go through some serious extremes.
While Asian emerging markets have had their ups and downs over the last decade, right now may be one of the most attractive times to buy cheap stocks... These stocks are 50% below their 1994 peaks, and business is good.
Let me explain...
The Profit Cycles in Emerging Markets
The months preceding January 1994 were exceptional... Hong Kong's Dow (the Hang Seng Index) nearly doubled, rising from 7,000 to 12,000 in six months. My phone was ringing off the hook, with U.S. investors desperate to buy stocks in Asia. Business couldn't get any better for me - I bought a fancy car and basically didn't even think about money.
A year later I had to downsize my lifestyle... By January 1995, one year after the Hang Seng peaked at 12,000, those stocks were cut nearly in half, with the Hang Seng Index plummeting back down to the mid-1993 level of 7,000.
Nobody wanted to hear about foreign stocks or bonds in 1995. Funny thing is, it would have been the perfect time to buy... as the Hang Seng Index doubled to 16,000 by 1997.
In 1997 everyone was excited about Asia once again... and then the Asian Crisis hit. The Hang Seng Index was cut in half again in 1998, to 8,000. By the year 2000 it reached 18,000. Almost unbelievably, by 2003, it was cut in half yet again.
And that's how it goes in emerging markets - way up, way down, way up, way down. It's a roller coaster ride.
Right now, Asian emerging market stocks are 50% below their January 1994 peak (based on the Morgan Stanley MSCI Emerging Asia Index www.msci.com). It's time to consider such cheap stocks once again...
Two Good Ways to Play Emerging Markets...
Two very good ways to play emerging markets in general are:
- The Morgan Stanley Emerging Markets Fund (NYSE: MSF), which currently trades at a double-digit discount to its underlying value
- Shares of iShares MSCI Emerging Markets Fund (NYSE: EEM), which is like an emerging markets index fund
Both are good, and easy to buy and sell.
Cheap Stocks...Cheap Companies... Without the Crisis You'd Expect
Actually, emerging markets today remind me of buying U.S. stocks in 1982.
For one, emerging markets in general are as cheap they've been in at least 10 years. Emerging markets are trading at a forward P/E ratio of less than 9 - yes, a single-digit P/E... something we haven't seen in the U.S. since, well, 1982, which would have been an extraordinary time to buy U.S. stocks.
Generally when super cheap stocks are really low, something has gone seriously wrong... like the Asian crisis, for example.
But there is no crisis.
On the contrary: According to Morgan Stanley, as a group emerging market companies are delivering their highest return-on-equity numbers in their entire history.
When investors get scared, they get the heck out of emerging markets. And they are out of them now. It is my opinion that fear will pass once the presidential election has passed, and emerging markets could rally nicely.
Get there first.
Today's IU Cribsheet
- In the latest issue of my newsletter, True Wealth, I recommend my favorite way to play this trend, in my favorite emerging market country (it trades on the New York Stock Exchange). If you are not yet a subscriber to True Wealth, you may want to consider it... Visit http://www.agora-inc.com/reports/TRW/WTRWE716/home.cfm for more information.
- To read more about two emerging market investments you should consider, check out the Morgan Stanley Emerging Markets Fund (NYSE: MSF) http://finance.yahoo.com/q?s=MSF... and iShares MSCI Emerging Markets Fund (NYSE: EEM) http://finance.yahoo.com/q?s=EEM