The current volatility has many stock market investors wondering if the six-year-old bull market is finally over in the United States.
Unprecedented central bank easing has jump-started the economy to such a strong degree that the Fed will be increasing interest rates in the very near future.
Historically, periods of climbing interest rates have had a negative effect on stock prices. Combine this fact with mixed economic and corporate numbers and the end of the bullish run becomes a very real possibility.
Technical analysts are pointing to the historical evidence that increasing volatility often precedes a market top. This further confirms that the stock market bull may very well be breathing its final gasps.
While no one really knows for certain what the future holds, savvy investors have started investing in stock markets outside of the United States in search of profits.
To be specific, several of the beat down emerging markets are signaling bullishness right now.
While there is risk in the emerging markets despite the bullish signals, it just makes investing sense to buy when markets have already been beat down rather than after they have soared higher. Buying low and selling high is the cornerstone of successful investing.
We have discovered several emerging markets currently offering this potential right now. These beat down equity markets are starting to be snapped up by hedge funds and the smart money. It’s not too late to jump on board.
The good news is that you don’t need to have a special off-shore stock trading account or anything like that to participate in emerging markets. Many investors don’t even consider stocks outside of the U.S. borders due to the mistaken belief that it is very difficult to access these markets as an individual investors.
Some investors even believe that it is illegal or somehow unethical for U.S. citizens to invest in emerging markets!
Well, nothing could be further from the truth. It is perfectly legal and ethical to invest in most emerging markets. Furthermore, ETF’s make investing in emerging markets seamless and easy. In fact, investing in emerging markets is as simple as buying any stock.
This article will reveal the three emerging markets we have discovered that are ripe for investment and the exact ETF’s to capture the upside potential.
First, exactly what are emerging markets?
Investopedia defines emerging markets as;
Economies that are progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.
Emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies (such as the United States, Europe and Japan), but emerging markets will typically have a physical financial infrastructure including banks, a stock exchange and a unified currency.
The three emerging markets that we believe have huge upside potential right now are Russia, China, and Africa.
Let’s take a closer look at each of these markets from an investors point of view and reveal the best ETF to capture the upside.
Every since the fall of the Soviet Union, the Russian Federation has been embracing capitalism and growing at a rapid pace. While the nation is still struggling as an emerging economy and walks the fine line between state control and free markets, it remains a very profitable place for investment.
Right now Russia trading at a substantial discount to historical valuations and to its fellow nations. The MSCI Russian Index trades at a 25% discount to book value.
Russia is the largest nation in the world geographically with abundant natural resources, a well-educated workforce, healthy government finances, and improving corporate governance. However, its stock market continues to trade at deeply discounted fundamentals creating the opportunity for savvy investors.
Consumerism is thriving in this once state run economy. Russia is currently the second largest consumer market in Europe. Consumption has increased at a steady 20% annually over the last 15 years according to the leading Russian investment manager, Prosperity Capital.
Investors often just remember the fact that Russia defaulted on its debt back in 1998. Since that time, Russia has operated as a net creditor and boasts a current account surplus.
What I find most interesting about Russia is the fact that the nation has a 5 P./E ratio which is less than it was in 1999. However, at the same time, GDP has exploded ten times during this same time frame.
Add in the fact that Russia remains the world’s largest oil producer and it paints a very bullish picture!
Our favorite ETF to capture Russia’s growth curve is Market Vectors Russia ETF (NYSE:RSX).
We have touched upon China in several earlier articles. The giant nation remains in our top 3 emerging market economies.
Recently, this country has obtained somewhat of a bad rap in the stock investment community. You see, growth has slowed down and there are a few shifty companies operating there. This has spooked many investors despite growth remaining very high and a huge number of ultra-successful, profit-making companies.
The fact is that this economy still boasts the highest growth rate in the industrialized world. In any other nation, the growth rate even after the slowdown, would be off the charts. This growth rate remains at such a level that this economy is slated to overtake the United States as the number one economy within the next decade. In fact, some pundits are stating that it will be the world’s largest economy by 2016!
If you haven’t guessed it, I am talking about China. The Chinese stock market is on fire despite the recent waves of negativity.
There is no worry about liquidity in the Chinese stock markets. Several days this year, trading on China’s major stock exchanges has grown to over $210 billion during several sessions. This represents nearly four times the session volume on the New York Stock Exchange.
At the same time, China’s per Capita GDP remains sharply below other industrialized nations such as the United States, Japan, and Germany. What this means for investors is that there is monster upside potential as the per capita GDP slowly catches up with the rest of the industrialized world.
You see, China’s middle class is expected to grow to 700 million which is creating a monster market across the board. This explosive growth away from the rural areas into the cities builds a middle class that will spend, spend, spend!
Now, to be sure, there is a way to place the odds in your favor to maximize gains when investing in China. This tactic also helps reduce the risk of fraudulent companies and other shenanigans.
This tactic entails only investing in a certain type of Chinese stock. This stock type is called Chinese A-shares.
China’s A-shares are the renminbi-denominated shares of companies incorporated in mainland China and traded on the Shanghai and Shenzhen exchanges. Renminbi is the official Chinese currency.
The reason I love the Chinese A-share sector right now is the fact that they are trading at historically low P/E ratios. This means that there is tremendous fundamental upside potential.
Our favorite ETF to capture profits in China is the db X-trackers Harvest CSI China A-Shares Fund ETF (ASHR).
This continent remains the least popular investment of our three favorite among most investors. It is truly the final frontier for stock investors.
Many countries in Africa have seen accelerated growth for an extended period since the mid-1990s. Their GDP has averaged 4.5% between 2000 and 2009, and 7 of the 10 fastest growing economies globally in the next 5 years are projected to be African.
African poverty rates are forecasted to decline at the fastest pace worldwide
While Africa continues to show huge economic potential with vast natural resources and favorable demographics. However, political risk remains high, therefore, despite huge upside potential, Africa is only suited for true risk-embracing investors.
We like Market Vectors Africa ETF (NYSE:AFK) as the best way to play this growing market.
We like this one because it is the only continent-wide ETF available. AFK, has $126 million in assets, weights its portfolio exposure to countries based on their gross domestic product. That reflects into 22 percent in South Africa, 18 percent in Nigeria, 17 percent in Egypt, 9 percent in Morocco and 2 percent in Kenya.