Published April 26, 2017

We Haven’t Seen a Buying Opportunity Like This Since 1999

By Justin Spittler, editor, Casey Daily Dispatch

Let’s turn back the clock to January 1999.

The U.S. stock market is on fire.

The S&P 500 is up 167% over the last four years. It’s up more than 300% over the last decade.

It’s a true mania. And everyone is getting rich.

But here’s the thing: manias don’t last forever. Eventually, they all go bust.

That’s exactly what happened to the dot-com bubble.

In March 2000, the market topped out. The average internet stock plummeted 78% over the next two years. Many dot-com darlings fell off the face of the earth.

Looking back, it’s easy to say that you should have pulled out of stocks in 1999. But that actually wouldn’t have been the best move.

That’s because a new bull market was born just as the dot-com bubble was coming to an end.

• I’m talking about the great emerging market stock boom…

Emerging markets are countries that are on their way to becoming developed nations like the United States or Germany. Brazil, Russia, India, and China (known as the "BRICs") are some of the world's biggest emerging markets.

In 1998, emerging market stocks quietly began a rally for the ages.

That boom lasted until 2008. During that span, the average emerging market stock soared more than 450%. The best ones returned 1,000% or more.

It was the investing opportunity of a lifetime. But most investors missed it.

They didn’t want anything to do with emerging markets in 1999. And why would they?

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• Emerging market stocks underperformed U.S. stocks from 1995 to 1998…

As humans, we’re wired to buy what’s doing well. It’s much harder to buy something that’s falling.

But that's exactly what you should have done toward the end of the dot-com bubble.

After all, the iShares MSCI Emerging Market Index surged 64% in 1999. That’s more than triple the S&P 500’s 21% return that year.

Emerging market stocks went on to outperform U.S. stocks for 10 out of the next 12 years.

So, not only could you have sidestepped the dot-com crash by buying emerging market stocks in 1999… You could have made an absolute fortune.

I’m telling you this because almost the exact same opportunity is staring us in the face right now

• U.S. stocks have been rallying for eight straight years…

Meanwhile, emerging market stocks have been “dead money.”

Just look at this chart.

It compares the iShares MSCI Emerging Market Index with the S&P 500. You can see emerging market stocks have gone nowhere for the last seven years while U.S. stocks have rallied to record highs.

Emerging market stocks have now underperformed U.S. stocks for four straight years. That hasn’t happened since 1998.

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• Most people would see this as a reason to avoid emerging market stocks…

But remember what emerging market stocks did the last time this happened. They crushed U.S. stocks over the next decade.

Now, history doesn’t always repeat itself, but it often rhymes. And right now feels like 1999 all over again.

In fact, emerging market stocks are already up 15% this year. That’s more than double the S&P 500’s 7% gain this year.

In other words, this could be the chance to get in at the ground level of the next emerging market boom.

Today, I’ll show you the safest way to do this. But let’s first look at why emerging market stocks should keep rallying…

• Emerging markets are some of the fastest-growing economies on Earth…

Last year, they grew 4.1%. That’s more than twice as much as the U.S. economy grew (1.6%) in 2016.

This year, the International Monetary Fund (IMF) expects emerging markets to grow 4.5%. That’s nearly double the 2.3% growth rate that the IMF projects for the U.S.

Next year, the IMF expects emerging markets to grow 4.8%, versus 2% for the U.S. economy.

• Now, investors normally pay a premium to own stocks in fast-growing countries…

But emerging market stocks actually trade at a huge discount to U.S. stocks.

You can see what I mean below.

This table compares the iShares MSCI Emerging Markets Index ETF (EEM) with the SPDR S&P 500 ETF (SPY), which tracks companies in the S&P 500.

You can see that emerging market stocks are cheaper than U.S. stocks according to two popular valuation metrics: price-to-book (P/B) and price-to-earnings (P/E). They also pay much higher dividends.

  P/B P/E Dividend Yield
EEM 1.69 15.83 2.42%
S&P 500 3.11 21.74 1.95%
Difference -46% -27% 24%

To be fair, emerging market stocks have been cheaper than U.S. stocks for years…

But here’s why today is different…

• The smart money is warming up to emerging markets …

Last year, Pimco called emerging markets the “trade of the decade.”

Pimco is one of the world’s biggest money managers. They oversee $1.5 trillion.

Yesterday, Morgan Stanley’s head of global fixed income said investors should be “overweight” emerging market bonds. Morgan Stanley is one of the largest U.S. investment banks.

In February, BlackRock told CNBC that they are more bullish on emerging market stocks than U.S. stocks. BlackRock is the world’s largest asset manager. It oversees more than $5 trillion.

In short, the smart money is finally warming up to emerging markets again. And that's exactly what this market has been missing for years.

• If you don’t already own emerging market stocks, I recommend you buy some today…

You can get started with a major emerging market fund like EEM. This fund invests in more than 800 emerging market stocks.

It’s a relatively safe and diversified way to own emerging market stocks. Plus, if this boom is anything like the last one, you could triple your money in a fund like EEM over the next few years.

Regards,

Justin Spittler
Delray Beach, Florida
April 26, 2017


Editor’s note: Today, our colleague and expert trader Jeff Clark has an update on the gold sector…

Chart of the Day: The Bottom May Be in for Gold

Gold stocks got crushed yesterday.

The Gold Bugs Index (HUI) fell almost 5%. 

The sector is now oversold enough that we can start looking for a bottom.

Typically, the gold sector bottoms by falling sharply on the opening and then reversing and closing higher on the day. That type of action usually marks a selling climax for the sector…

And it’s what I’ll be looking for in order to add exposure to gold stocks.

—Jeff Clark

P.S. If you’d like to receive my free daily market insights, Jeff Clark’s Market Minute, click here and I’ll automatically add you to my list. You’ll also receive a link to my Guide to Options Trading just for signing up. This free report will teach you how to trade options the right way… and dramatically boost your overall returns.