Another day, another disaster in emerging markets.
We can only hope the world’s financial markets can pull through this one.
This could be the big one. It could be the one to end it all…or probably not.
Yesterday the Kazakhstan central bank devalued its currency by 19%.
As we admitted yesterday, we don’t know much about currency moves…but we do know a good deal on stocks when we see one…
The latest news out of Kazakhstan made it to the main story on the Bloomberg News website last evening:
‘Kazakhstan’s announcement follows Argentina’s devaluation of the peso last month and Ukraine’s decision to impose capital controls to stem a plunge in the hryvnia. The move will bolster the competitiveness of [the] central Asian nation’s economy and reduce speculative pressure on the tenge, the central bank said.‘
Who’d have thought currencies such as the peso, hryvnia, and tenge would get so much attention. Clearly it’s very important.
OK, it’s not important at all. But we’re pleased for Kazakh investors. According to Bloomberg News, ‘The Kazakhstan Stock Exchange rose 12 percent after the announcement.‘
We can only hope that Kazakh investors hadn’t been frightened into holding cash prior to the devaluation. They would have seen their wealth drop 20% straight away. At least stock investors will have recovered some of that loss thanks to the rising stock market.
Conventional Wisdom Loses Again
This is perhaps another example of throwing conventional wisdom out the window.
Conventional wisdom suggests that when things look risky, investors should look towards the safest assets. And by safest assets we mean cash.
Because, despite the worries about inflation and money printing, there are still plenty of people who think that cash offers the best security. That’s despite evidence to the contrary.
You only have to look at the bank runs in the US and UK during the financial meltdown in 2008. Even if savers got their cash out of the bank, they now have devalued money after nearly six years of money printing.
Or look at Japan in 2012. The Bank of Japan resolved to double the money supply in an attempt to create inflation and weaken the value of the yen against foreign currencies.
The poor saps who held cash – whether they realise it or not – have seen the real value of their wealth fall. By contrast, the risk takers who could see what was happening bought stocks and enjoyed rapid gains.
The same goes for investors in the US and UK, where the stock markets have gained 138% and 77% respectively since the 2009 market bottom…oh, and Japan’s market is up 94%.
That’s the key thing investors have to learn if they want any chance of making money in this market: they have to throw conventional wisdom out the window and look for opportunities in some of the most unlikely of places.
Emerging Markets are the Uranium of Macro-investing
That’s why we see great opportunities in emerging markets at the moment.
Sure, we know it could be a hiding to nothing. We know that emerging markets are the ‘uranium’ of macro-investing.
Just as uranium stocks have had more booms and busts over the past 10 years than you can shake a stick at, the same goes for emerging markets.
And yet we can’t help but feel that the fear-mongering about these markets is more than slightly overdone. In fact, we say it’s now worth speculating on them at these relatively beaten-down prices.
This is part of being a successful contrarian investor. Heck, it’s part of being a successful investor full stop.
As an investor you should look for opportunities to buy into a market that other investors fear. Now, that doesn’t always mean buying into a market straight away. Sometimes it can take days, weeks or even months for a ‘bear market’ cycle to play out.
But however long it takes to play out, you have to be ready to act if you want to make the most of the early move.
Take even the S&P/ASX 200 index as an example. It was barely more than a week ago that the front page of the business websites were screaming about the billions wiped off the market.
We have no doubt that would have scared the bejeezus out of all but the most disciplined investor. That’s a shame because just a few days later the Australian market is up 157 points from the low, or 3.1%.
Some stocks have done even better, including the tiny stock that analyst Jason Stevenson says is one of the best gold miners on the Aussie market. It’s up 10.3% in five days. Who says you can’t make money in this market?
Don’t be a Scared Investor
That’s pretty good, but look at what can happen if you get on board a riskier asset. Take the SPDR S&P Russia ETF [NYSEARCA:RBL]. It’s an exchange traded fund that trades in New York.
It covers Russian stocks.
Since the big ballyhoo over emerging markets last week, and the apparent fears of a crash, guess what has happened?
That’s right, since then this ETF has gained 4.7%. So much for the ‘flight to safety’.
It goes to show you that when some investors are running scared, other investors are out shopping for stock bargains. If we could only give you one bit of advice it would be this…
Don’t be a scared investor, be an opportunistic investor.
Cheers,
Kris
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