“Be an adventurer; like the American of a century ago, not his clerkish descendant of today. You must think as a builder, a conqueror.” -John Train, Preserving Capital
On the heels of the Treaty of Paris, the Empress of China, packed with 30 tons of ginseng, set sail from New York on February 22, 1784.
In August the ship sailed up the Pearl River with the stars and stripes unfurled, the first time an American vessel had been in this part of the world.
The Chinese called them the “New People” while the Dutch and British traders eyed them suspiciously.
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The Empress of China left the Orient just after Christmas and arrived back in New York in May 1785 loaded with 800 tons of tea, 20,000 pairs of trousers, and a huge stock of porcelain.
This very risky 15-month journey yielded a return of only 25% – a pretty paltry sum for the duration and risk of the expedition.
Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) aims to do a lot better than this, and with less risk. Lucky for you, there are many easier ways for you to invest in emerging markets growth.
A New Captain on the Cabot Emerging Markets Deck
We all know the downside of getting older – but two of the advantages that should come with experience are perspective and judgment.
This is exactly what Paul Goodwin brought to his Cabot Global Stocks Explorer readers over the past decade-plus. His nimble hands have skillfully navigated the unavoidable volatility of emerging markets, producing a geyser of great recommendations.
As the new captain on the deck, I plan to keep up that momentum as well as introduce some new strategies and ideas.
I’ve been following Asian, emerging and frontier markets for more than three decades. So as I step into the role of chief analyst of the Cabot Global Stocks Explorer advisory service, it may be helpful to begin anew with a quick overview of these dynamic markets.
What makes emerging markets different? How can investors capture their much higher growth while managing their significantly higher volatility?
More pressingly, is 2019 the time to increase exposure to emerging markets in your portfolio as America’s 10-year bull run is looking a bit shaky and long in the tooth?
But first, let’s put these emerging growth markets in perspective.
Of the 190 countries in the world, only 50 of them are considered “developed” – the remaining 140 countries are viewed as emerging or frontier markets.
Emerging Markets Playing Catch-up
The big picture is that the world is filling in as emerging markets “catch up” to the West on the back of greater access to technology, capital and trade.
But emerging market stocks have a way to go to catch up.
Emerging markets now account for:
80% of the world’s population
40% of the world’s GDP
12% of global stock market value
Here are the numbers for the United States:
5% of the world’s population
20% of the world’s GDP
55% of global stock market value
In the coming years, America’s 55% share of global stock value will likely go down, while the scant 12% for emerging markets will very likely go up.
Here is a startling example of this imbalance. The largest 50 companies in India have a combined market value that’s less than Amazon’s (AMZN)!
This gap is your opportunity.
Consumers based in emerging markets tend to be much younger (China and Russia are exceptions) and are moving into the peak spending and investing periods of their lives. Think of them like American families in the early 20th century or coming out of World War II.
It’s also important to note that although the MSCI Emerging Markets ETF (EEM) has exposure to 25 countries, it is dominated by four countries – China, South Korea, Taiwan and India account for 75% of the fund, and seven of the top 10 largest companies in the index basket are Chinese.
But it is important to remember that the other 19 countries accounted for in the fund, including Chile, Indonesia, Thailand, Mexico and Poland, represent significant opportunities too.
All told, the EEM is comprised of 800 stocks, and 50% of them are active in just two areas: information technology and finance/banking.
Tomorrow, I’ll continue with an overview of how emerging markets have performed of late and some specific ideas to get started in 2019.
To get a head start, become a member of Cabot Global Stocks Explorer today by clicking here. Looking forward to a great first year as Cabot’s emerging markets captain!