When I was a financial reporter, I’d go to finance industry conferences to report on business news stories.
Afterward, I’d often find myself talking with traders and soaking up as much of their market wisdom as possible.
When it comes to big market sell-offs, I heard one concept again and again: Buy strength.
In other words, look for those stocks and sectors that held up best when other stocks were failing badly.
With that in mind, I’m going to make my prediction for 2019. It will be the year U.S. investors return to emerging-market stocks in a big way.
Rediscovering Emerging-Market Stocks
Emerging markets are demonstrating a degree of strength at a time when most U.S. stocks have little:
In other words, for the first time in a long time, emerging-market stocks are starting to perform better than the U.S. market as a whole. And it’s likely to be the start of a trend.
Now, I know what you’re thinking. Before the FAANG stocks, we had the BRIC stocks — Brazil, Russia, India and China.
Since then, few U.S. investors care about the international arena as those countries, and emerging-market stocks in general, fell into deep bear markets and corrections.
That’s precisely why I think emerging markets will be rediscovered in 2019.
As the Federal Reserve winds up its rate-raising policy, we’ll see a slow rotation into these kinds of stocks. They’re out of favor and about as cheap as they come.
Great Growth Stories Still to Be Told
As a market, the U.S. has a cyclically adjusted price-to-earnings ratio (or CAPE) of nearly 30. India, with gross domestic product growth of 7% — twice that of the U.S — has a CAPE ratio of 21.
Another fast-growing emerging market, the Philippines, has a CAPE of 18, followed closely by Mexico, and even Europe’s industrial powerhouse, Germany.
The point is, the U.S. market is pretty much fully valued, with many individual companies at peak valuations and profitability. The game gets harder from here.
But in offshore markets, it’s a wide-open field, with great growth stories still to be told.
Let’s take e-commerce, for instance. According to Payments Industry Intelligence data, Indonesia’s internet sales grew 78% last year.
The Philippines and Mexico both saw gains of more than 50%. Online purchases jumped 27% each in China and India.
And in the U.S.? E-commerce sales in 2017 rose 12%.
Buy strength, as the old-time traders used to tell me. And in 2019, that’s where we’ll find emerging-market investments — as the strongest stocks around.
Jeff L. Yastine
Editor, Total Wealth Insider