Another day, another new record high for the stock market.
S&P 500, Dow Jones, NASDAQ,…
Since October, stocks have been moving in one direction—up.
One can’t help but wonder if this market is running too hot.
Not that I mind. I have a significant portion of my portfolio invested in U.S. equities, so I welcome the rally.
However, for novice investors, it must be challenging to muster the courage and dive in when the S&P 500 is trading at a P/E ratio of 24.74.
Especially when you consider that at least 20 different metrics are indicating U.S. stocks are historically overbought and due for a correction.
Therefore, I recommend that, if you are just entering the market, you consider an alternative route (no, I’m not thinking about Bitcoin or anything like that).
My favorite bet for 2020 is emerging markets.
These Macroeconomic Factors Make Emerging Markets The Perfect Investment For 2020
Investing in emerging markets has always been a tricky business.
On one hand, these economies are growing much faster than the U.S. economy, making them extremely attractive for investors.
On the other hand, these are mainly exporting countries, meaning they are incredibly sensitive to the global economic cycle.
Which means it’s easy to lose money if you don’t get the timing right. Fortunately, the timing right now is perfect.
Over the last two years, we’ve seen the global economy contract. This has been a result primarily of central banks around the world tightening their monetary policies… and of the uncertainty surrounding the U.S.-China trade dispute.
In late 2019, however, the landscape improved. First, central banks began easing again lowering interest rates and QE programs. Then, Washington and Beijing reached a Phase One trade deal.
These were two critical events, because they effectively kicked the global economy back into gear.
Meaning, this is an excellent time to start investing in emerging markets.
Here are a couple of specific emerging markets investments worth considering.
My Favorite Emerging Markets Investments
The most obvious option, of course, is a broad-market ETF.
The one I like is iShares MSCI Emerging Markets (EEM). It’s one of the oldest on the market, as well as one of the most popular.
Do note that it has substantial exposure to China (33% of assets), so make sure you’re comfortable with that.
And, speaking of the second-largest economy, I like the Chinese tech giants Alibaba (BABA) and Tencent (TCEHY), as well.
Both companies have solid fundamentals and are trading at a fair price, albeit somewhat higher than other emerging markets stocks.
Another play I’ve been recommending for a while is Hong Kong. “Buy when there’s blood in the streets” comes to mind here.
Stocks in the Asian financial capital currently trade at significant discounts and represent some of the best investment opportunities out there.
It can be easy to forget, but Hong Kong is still the gateway to China and will continue to fill this role.
Again, the easiest way to play this market is through an ETF—for example, iShares MSCI Hong Kong (EWH).
Outside China, the emerging market I like best is Vietnam.
It has a young population, a deep labor pool, and trade deals with all the big economies.
Because Vietnam is technically still a “frontier” market, not many ETFs cover it. VanEck Vectors Vietnam (VNM) is one, though it’s not my top choice.
I prefer the VinaCapital Vietnam Opportunity Fund (VOF). Its performance is substantially better than VNM’s, and it tracks the Vietnamese stock market more closely.
VOF trades on the London Stock Exchange, but you should be able to access it through your online broker.