Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don't Miss Your Chance to Load Up on Cheap Emerging Market Stocks

Companies / Emerging Markets Aug 17, 2011 - 06:49 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKerri Shannon writes: Thanks to the wild market swings of the past month, emerging-market stocks are trading at historic lows. That means investors have a rare opportunity to load up on stocks at valuations they wouldn't see under normal circumstances.

If we were talking about a sell-off that was based on fundamentals, that might be a warning sign. But what we've seen instead is the irrational dumping of companies that actually are poised to see their profits grow.


Take a look.

The stock-market sell-off that's pushed the Dow Jones Industrial Average down 9% in the past month has rubbed off on emerging-market stocks. The MSCI Emerging Markets Index, which tracks market performance in developing economies, has slipped 12% this month - its worst slide in three years. After falling as low as 990, it's now trading around 1,010, 28% below its 20-year average.

This puts emerging-market stocks near record-low valuations, and with their high-growth outlook it's time for investors to scoop them up at bargain prices.

"We've been pecking away at things as they decline," billionaire investor Wilbur Ross, chief executive officer of WL Ross & Co., told Bloomberg Television. There's "plenty that's attractive in the emerging markets. Buying stocks at today's prices over a couple of years' time period will prove to be a uniquely rewarding experience."

Misleading Valuations
Current emerging-market valuations are at their lowest level since March 2009, but companies are worth much more than share prices reflect. The latest prices imply these companies will lose about 20% of earnings over the next year, according to Morgan Stanley (NYSE: MS), when in reality they're poised for growth.

A survey of Bloomberg analysts estimated emerging-market company earnings could increase about 19% over the next year.

"Stocks look like buys," Nicholas Smithie, emerging-market strategist at UBS AG (NYSE: UBS) told Bloomberg. "There has to be a Lehman-style collapse in economic activity and stress in the financial system for these valuations to be justified."

Citigroup Inc. (NYSE: C) analyst Jason Press agreed the recent market sell-off pushed stock prices down to misleading levels.

Stocks are "pricing in an earnings recession, which certainly does not seem to be the case," Press told Bloomberg.

While some developed nations may be headed for a double-dip recession, many emerging-market consumers will continue spending, keeping company earnings strong.

Developing-market earnings have far outpaced companies heavily reliant on debt-plagued United States and Europe for profit. Second-quarter profits at MSCI index companies were up 30%, more than five times profits for companies in the MSCI World Index, up only 5.6%. And the earnings-per-share for emerging-market companies were up to a record high of $95 last month.

That earnings disparity is set to grow going forward. Emerging economies are expected to expand 6.4% next year, compared to only 2.6% in advanced nations, according to International Monetary Fund (IMF) estimates.

The past couple of times promising emerging-market stocks have fallen steeply, they've rallied big for investors.

The MSCI Index is currently trading around 9.8-times earnings, and the last time the measure hit 9-times earnings - in October 2008 - investors enjoyed a 60% rally over the following 12 months.

When the index fell that low in August 1998, it bounced back 44% in the following year.

The index got a small boost this week as experts started stocking up on the cheap shares. Morgan Stanley increased the equity allocation in its emerging-market portfolio by eight percentage points to 58%, citing "historic" low valuations.

Companies' share prices could slip a little more, but now is still a good time to buy.

"There are a lot of good companies that still have good earnings, that still have good operations, and if you're a long-term strategic investor, now's the time to get out your pencil, sharpen your list and go shopping − even if we haven't hit the bottom," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

How to Play Emerging-Market Stocks
To profit from good emerging-market stock deals, look for foreign companies that rely on domestic demand, or companies that primarily serve a developing economy.

Contributing Editor Martin Hutchinson suggests investors take a look at Chile, which he has said was the one emerging market not to ignore in 2011.

He recommends the iShares MSCI Chile Investable Market Index Fund (NYSE: ECH), for broad exposure to the MSCI Chile Index.

Another market to consider: Peru.

Compania de Minas Buenaventura SA (NYSE ADR: BVN) is a play that combines an emerging economy with gold's explosive price growth. Buenaventura is Peru's largest precious-metals mining company.

Hutchinson also suggests checking out Asia.

"Look at countries like South Korea and Singapore where the local governments are grown-up, the budget deficits are small, and the political risks are minor," Hutchinson said. "These countries are the AAAs of the future."

You can play these markets through exchange-traded funds, like iShares MSCI South Korea Index Fund (NYSE: EWY) and iShares MSCI Singapore Index Fund (NYSE: EWS).

China, although much more advanced than many emerging markets, is an attractive option because it's not likely to face the same debt disasters as some developed economies.

"Check out China and anything related to or doing business because of China, regardless of where the company in question is traded - New York, London, Hong Kong, Singapore, etc.," said Fitz-Gerald. "If you are a long-term investor you want to go with the world's creditors, not the debtors. Plus most of these emerging-market countries had their own crises a decade ago, so they are not making the same mistakes again that we are making for the first time."

For investors who want to hunt for profits in more obscure emerging markets, there's a new fund from Emerging Global Advisors, the EGShares Emerging Markets High Income Low Beta ETF (NYSE: HILO). It focuses on low-volatility companies with a beta less than one and companies with high dividends. About 90% of the companies in the ETF have had increasing dividends since 2008.

The fund also strips out two of the usual countries included in emerging-market ETFs: South Korea and Taiwan. EGA President Robert Holderith said they no longer view those nations as true "emerging markets." This lets investors get their hands on the "next" emerging-market stocks.

Source :http://moneymorning.com/2011/08/17/emerging-market-stocks-hit-historic-lows-dont-miss-your-chance-to-load-up/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in