Markets are in perpetual motion. What was right yesterday can be wrong today … and more wrong tomorrow.
Unfortunately, most people don’t like that truth.
And, yes, sure, it’d be easier to make money in the markets if it were possible to know in which direction they were headed next.
If you want to know what’s coming and how to make money from it, speak with a fortune-teller.
Professional analysts understand that no one can predict the future.
Recession? Or, Wait, No, Maybe Expansion?
Take our current situation.
Global GDP is slowing, and, only two months ago, it looked like we were on the brink of a recession.
Signals blinking red everywhere you looked. Indeed, we were close, I believe, to a market collapse. A single piece of bad news could have resulted in a crash.
But, then, the signs began to improve.
Fed Chairman Powell halted interest rate hikes, which had been squeezing the market, while Washington and Beijing decided to resolve their trade dispute rather than escalate it. There was even a glimmer of hope on the Brexit front.
Now here we are, the Ides of March upon us, and the picture looks quite different indeed than it did just a couple of months ago.
Yes, global growth continues to slow, but with stimulus coming from all over the globe, the outlook is much more optimistic.
Last Thursday, the European Central Bank announced it would keep interest rates at 0% for at least another year. Moreover, it will launch TLTRO-II, which is nothing but quantitative easing in disguise … and we know what that does to stocks.
Across the Atlantic, even the most hawkish Fed governors are on the same page, calling for “patience” in regards to additional rate hikes. They want to do anything to protect the stock market from declining.
And across the Pacific, China is throwing in everything but the kitchen sink to try to rouse its economy. In the past two months, the Chinese government has introduced new tax cuts, launched infrastructure projects, and reduced bank reserve requirements.
The Art Of The Deal
One thing that could still sour the markets is a failed trade negotiation between the two largest economies. However, even on this front, I see more positive news than negative.
Both negotiating teams have declared good progress and suggest that the deal is close to completion.
We all know how much weight to give politicians’ promises, but, so far, the politicians in question are backing up their words with actions.
Beijing has announced it intends to pass a bill banning forced technology transfers this Friday.
Moreover, the country will increase penalties on intellectual property theft, promising that violators will “go bankrupt” and “have no place to hide.”
Finally, China will allow foreigners to set up fully foreign-owned business entities, instead of forcing them into joint ventures with local partners.
With significant changes like these, President Trump will undoubtedly do his part and lift the tariffs, and he was quick to extend the March 1 deadline.
That’s because a successful trade deal could all but secure him a win in the upcoming elections.
With both sides eager to end the dispute, I expect a historic meeting to happen as early as this spring … which will send global markets soaring.
Buy The Dip In Emerging Markets
If you’re looking for the best way to profit from this shift, look at emerging markets.
Sure, they were the worst performers last year, but 2019 is shaping up to be an entirely different story.
First, these stocks trade at significant discounts compared with their U.S. counterparts.
The price-to-earnings ratio of iShares MSCI Emerging Markets ETF (NYSE:EEM) is only 12, while the S&P 500’s is 21.34. That means you’re paying nearly double for a share of the same profits.
Second, these are fast-growing economies with young populations and emerging middle classes. These are the markets of the future. It’s like investing in Japan in the 1950s, in time to profit from their economic miracle.
Finally, emerging countries are the ones signing trade agreements … while, in the West, we’re tearing them up.
Since Jan. 1, 2019, 11 Pacific countries with a total population of a half-billion are trading with each another free under the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the successor of the TPP.
Moreover, last week, Indonesia, the fourth-largest country in the world, signed a new free-trade agreement with resource-rich Australia.
However, the largest pact is still to come.
The Regional Comprehensive Economic Partnership (RCEP), which includes India and China, along with 14 other countries, will represent almost half of the world’s population and one-third of the global GDP. The talks for RCEP are continuing, and the members hope to sign a deal by the end of 2019.
The market is beginning to wake up to what is going on in emerging markets, and the window is closing to get in at close-to-bottom prices.
I’ve been traveling extensively in key emerging markets to identify opportunities to invest at bottom prices. After months of extensive research, I have identified seven emerging-market stocks that will benefit most from events that will play out in the coming decade.
Good investing,
Leon Wilfan
