The financial media is wrong about emerging markets investing

Written by Andrew Henderson

Dateline: Riga, Latvia

The weather here has undergone a sudden improvement. Just two days ago, I was walking through Riga’s Old Town under a light cover of one of the most idyllic snowfalls I’ve seen in some time.

Today, the weather is downright perfect. The scene here in Eastern Europe’s de facto capital is humming. It’s certainly not the kind of place you’d think is on the edge of collapse.

Yet, the Western financial media would have you believe just that. Articles about the death of emerging markets have been front page news in the financial press this past week. Turkey’s prime minister made headlines with his threats against Twitter and China’s manufacturing sector looks weaker.

As a contrarian investor, I believe — like usual — that the financial pundits are missing the point.

These are the same pundits that would tell you places like Latvia are “third world countries” unfit to live in. Just last December, I spoke with an American expat in Singapore who suggested that people are desperate to flee my family’s native Lithuania because it’s such a horrible place to live.

Funny, I didn’t notice anyone fleeing during the entire month I was just there (even with the chilly weather).

For now, the financial media is focusing its gaze on the fact that institutional investors are cashing out of emerging market funds based on these latest concerns.

However, China and Turkey do not comprise the entire emerging markets scene.

It’s funny how the Wall Street pundits are calling for the emerging markets to collapse — all while stating that by some form of odd correlation the bankrupt Western markets will benefit and experience some huge upturn.

It’s a rather silly idea.

What markets are actually struggling?

Let’s recap everything that is happening right now in the world: first, the United States has run up a $17 trillion national debt which is growing by hundreds of billions of dollars (if not more) every year. When you count unfunded liabilities, the number exceeds $100 trillion.

Meanwhile, the US government continues to play the role of “world policeman” against Russia and Middle Eastern countries — the same attitude that got it involved in several costly wars that helped run up that huge national debt.

Next, Western European nations have run up debt-to-GDP ratios so high you have to stand on your tippy toes to see the long lines of unemployed people on the other side. Countries like Spain have youth unemployment rates exceeding 50% and over a million empty apartments that have drawn squatters that can’t be kicked out.

In fact, a brain drain is once again taking place in Spain, Ireland, and other “rich” Western countries as youth flee looking for any sense of financial security.

Of course, the politicians’ answer to all of this: higher taxes.

France’s socialist leaders are still unrepentant about their push to raise income taxes to the stratosphere. Francois Hollande has been sitting down with business leaders to get them to grow their businesses and hire more people in France, but the business community is shunning him as the empty suit he is.

Furthermore, countries from Japan to the US are shooting more cash out of their printing presses in one hour than an entire assembly line of “Superdollar” counterfeiters in Peru could hope to forge in an entire decade.

These are the serious demographic and cultural issues that have brought the West to its knees. No matter how “rich” a country appears today, the party is winding down and serious hurt has fallen upon the world’s developed nations.

What the financial media doesn’t report about emerging markets

Yet, the financial media (who loves to refer to the Fed’s tiny reduction in the amount of funny money it prints as “tapering”) is all too happy to look past all of this and say “emerging markets are dead”.

Somehow, the fact that nations like Cambodia have seen 400% growth in recent years — and still have huge room to grow just compared to their emerging markets neighbors — is irrelevant.

The fact that more people in countries like Vietnam, Malaysia, Nicaragua and Uruguay are moving to the big city to take more rewarding, higher-paying jobs and buying goods, services, and real estate there is also irrelevant.

To the financial media, the entire demographic boom in emerging markets is irrelevant because one emerging market didn’t raise interest rates quite enough, or because another is expecting GDP growth to slow from 8% to 6.5%.

Are you kidding me? When on earth do you expect The Land of the Free to see 6.5% GDP growth again? Never in your lifetime.

Emerging markets have experienced growth over recent years because there are solid fundamentals behind them. More people with more education and wealth spending more money. It’s simple.

Sure, it doesn’t involve Wall Street money manipulation voodoo. It’s just basic mathematics: as more consumers have more money to spend, the better a market performs.

It’s a case of a rising tide lifts all boats.

Why and how to invest in emerging markets

That’s exactly what has happened in some of my favorite frontier and emerging markets. Throughout my travels I meet entrepreneurs from the United States, Europe, and locally who are making a fortune with simple businesses they started with little money.

Here’s my advice to you: don’t listen to the financial media’s noise on emerging markets. Here’s why: being a contrarian investor means profiting from opportunities no one else is looking at.

After all, that’s what this site is about. Anyone can talk about the stability of Singapore. Yes, I bank in Singapore, but I don’t view it as a growth market, nor an opportunity.

This site talks about staking your claim and growing your wealth in up-and-coming boom markets that no one else is talking about seriously. Cambodia, Nicaragua, Malaysia, Laos and Paraguay, to name a few.

The financial media isn’t talking about Cambodia because they can’t as easily swap derivatives on the place.

However, emerging markets have real core value built right into them. Unless everyone there stops having babies and stops going to work, they will grow over time. Don’t allow the media to make you believe the Fed is doing everything right and emerging markets are nothing but a bunch of unwashed peasants.

After all, just visiting all the emerging markets that I do, I can barely understand how anyone would say that these places are undesirable even to live in.

If you take a long-term view to growing your wealth, skip the slow-to-no growth Western economies. They may have brief moments of looking rosy, but they are not candidates for long-term prosperity. The trajectory of global wealth was based in Asia two thousand years ago, and every study shows it is headed back there.

Along the way, that emerging-markets-wealth will touch South America, Africa, and the Middle East as well. These are the places where you want your money. These are the places that resemble the United States when it was a boom market.

Don’t buy into the Wall Street nonsense that emerging markets are dead just because a bunch of traders are freaked out about an election in Uganda next month. After all, American elections are no picnic, either.

As to the current situation, I am continuing to monitor opportunities in Turkey in particular. Istanbul is not only a fantastic place to visit and live, but it is also a place for future opportunity, as I have long believed (as has Jim Rogers). I believe that, so long as foreign investment continues flowing in, there will come a time in the short-term when the lira will be at support levels and worth holding in a bank deposit paying 10-12% interest.

So don’t give up on emerging markets just yet.

Andrew Henderson
Last updated: Dec 29, 2019 at 5:59AM

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