Published on October 23 2017

These Wildly Misunderstood Markets Are About to Quadruple in Size

By Justin Spittler, editor, Casey Daily Dispatch

There were only about 60 people there.

But the group included millionaire traders, money managers, and other Wall Street insiders.

It was the most exclusive investing conference I’ve ever attended. But it didn’t take place in New York, San Francisco, or Chicago.

It was in Myrtle Beach, South Carolina.

Now, it’s not like South Carolina is a hotbed of finance or investing. So why did I go there?

Simple.

•  Jared Dillian invited me…

If you don’t know Jared, you should. He’s one of the best analysts in our industry.

His newsletter, The Daily Dirtnap, is unlike anything I’ve ever read. At our headquarters in Delray Beach, Florida, it’s must-read material.

So, when I got the invite, I immediately booked a flight…

•  And Jared delivered in spades…

The speaking lineup he put together was the best of any conference I’ve been to.

It included a managing director at multinational banking and financial services company Société Générale…the director of research at WisdomTree Investments…and a portfolio manager at PIMCO, one of the world’s premier fixed-income managers.

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One of the presenters, Vincent Daniel, was even portrayed in The Big Short, a wildly popular movie about the 2008 financial crisis.

For two days, we sat around and discussed why stocks are so expensive…why the market’s been so eerily calm…and what could eventually trigger the next crash.

It was powerful stuff. So today, I’m going to tell you about my favorite presentation.

It was about an asset class that most investors have never thought about owning…

•  I’m talking about frontier markets…

These are countries that are on their way to becoming emerging markets like India or China. They’re basically “pre-emerging” markets.

Kuwait, Pakistan, and Vietnam are a few of the biggest frontier markets.

Most people have never even thought about putting money in these places. They’re seen as too dangerous…too politically unstable…or even too “Third World.”

And for a long time, this was true. But that’s changing…

•  In fact, James Johnstone thinks it would be a big mistake to ignore frontier markets…

Johnstone co-heads the Emerging and Frontier Markets team at RWC Partners Limited. Prior to that, he ran an Asian hedge fund.

In short, Johnstone knows a thing or two about investing. And he says frontier markets are undergoing “dramatic changes.”

They’re turning unproductive, agrarian economies into industrial economies. In other words, they’re doing exactly what China did to become the world’s second-biggest economy.

So today, I’ll show you an easy way to invest in frontier markets. But you should first know why Johnstone is so bullish on these widely misunderstood markets.

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•  Frontier markets are growing like crazy…

In fact, eight of the world's fastest-growing economies are frontier markets. The other two (India and China) are emerging markets.

Of course, that’s a sample size.

So, to prove that I’m not cherry-picking, consider this: 32 frontier markets are growing faster than 4% per year. That’s twice as fast as the U.S. economy’s growing.

Of course, past performance doesn’t guarantee future results.

So, what’s really important is how a market will fare going forward. And the future is extremely bright for frontier markets.

•  Frontier markets have very favorable demographics…

About 60% of people living in frontier markets are under the age of 30. And the average age is just over 30.

It’s a much different story in the developed world where the average age is nearly 41.

This is a big deal. You see, young people work longer. They create more wealth. And they spend more money.

All of those things are good for economic growth.

That’s why frontier markets are expected to make up 25% of the global economy 10 years from now. That’s more than four times what they account for today.

Normally, investors pay a premium for that kind of growth. But that’s not the case here…

•  Very few investors own frontier market stocks…

Right now, there are just two frontier market funds.

And these funds have just $750 million in assets. To put that in perspective, the iShares MSCI Emerging Markets ETF (EEM) has nearly $36 billion in assets. And that’s just one of dozens of emerging market funds.

This is why Johnstone called frontier market stocks “hideously under-owned” during his presentation.

But that’s actually a blessing in disguise…

Since no one cares about frontier market stocks, you can buy them for next to nothing.

In fact, the iShares MSCI Frontier 100 ETF (FM) trades at a price-to-earnings (P/E) ratio of just 14.6. The S&P 500, for comparison, currently trades at a P/E ratio of 25.7.

This means frontier market stocks are about 43% cheaper than U.S. stocks.

•  This bargain won’t last forever…

If big institutional investors put just a little bit of money in these markets, these stocks will skyrocket.

You’ll obviously want to own frontier market stocks before that happens. And you can easily do that with a fund like FM.

Just understand that this is a “shotgun approach” to investing in frontier markets.

If you really want to maximize your returns, you should consider investing in individual frontier markets with the most upside. Here are four of Johnstone’s favorite frontier markets right now.

  • Vietnam

  • Romania

  • Argentina

  • Kazakhstan

You can learn more about the opportunity in Vietnam—one of my top frontier markets—by reading this report that Johnstone and his team put together.

Regards,

Justin Spittler
New Orleans, Louisiana
October 23, 2017


Reader Mailbag

Justin’s note: If you’ve been reading the Dispatch, you know I think there’s big money to be made in Canadian marijuana stocks. But not everyone’s as convinced as I am.

Joseph, a Dispatch reader, thinks the Canadian government just made a terrible mistake. He wrote last week:

Not so fast there, Justin. The other Justin [Trudeau] just announced a dollar surcharge on the first gram and then another 10% on anything over $10. So that pot explosion may just turn out to a firecracker. Looks like the black market in pot may still be around for a while.

—Joseph

I understand your concern, Joseph. After all, taxes can only hurt businesses.

But you need to realize something. Canadians pay about a 60% tax on tobacco products. They also pay a much higher tax rate on alcohol sales.

So, this marijuana tax is more than fair. In fact, it should allow Canada’s marijuana market to keep booming. Vahan Ajamian, an analyst at Beacon Securities in Toronto, agrees:

We believe licensed producers will be able to prosper under the proposed tax regime…

Further, we believe this proposal and related commentary validate our view that the government gets it. It shouldn’t view legalization as a cash cow and over tax the industry — at least initially, given competition from the black market.

In short, Canada’s government is trying to support the marijuana industry.

It’s a much different story in the United States. Here, the federal government treats marijuana like a street drug.

That’s why I’ve been urging investors to consider Canadian pot stocks. To see why, check out this recent essay I wrote on the topic.

P.S. I also encourage you to watch this presentation my team and I recently put together. As you’ll see, Canadian pot stocks could skyrocket, not a year or month from now, but as early as next week. To learn why, click here.

You Don’t Want to Miss This…

From November 6–10, Doug Casey, Crisis Investing editor Nick Giambruno, and Casey Report editor E.B. Tucker will gather together with a group of close friends at one of the most unique places in the world: Doug’s world-class residential community in Argentina—La Estancia de Cafayate.

As a reader of the Dispatch, we’d like to invite you to join.

This is not an investment conference—far from it. It’s friends gathering at a place built for like-minded people.

There’ll be great steaks, locally produced wine, and probably a few too many Cuban cigars. We’ll discuss what’s going on in the world, and what’s around the bend.

This is a unique chance to spend a few days with great people in one of the world’s most beautiful settings. If you haven’t seen the high desert of Argentina, please consider joining us.

Keep in mind, space is limited and spots are filling up quickly. So if you’re interested, don’t wait to sign up.

To get more details, just send us an email using this link. We hope to see you at La Estancia de Cafayate November 6–10.