Why It’s Time to Consider This “Dead Money” Trade by Justin Spittler
Emerging market stocks have been “dead money” for almost a decade.
Emerging markets are countries that are on their way to becoming “developed” like the United States or Germany. Brazil, Russia, India, and China—the so-called “BRIC” countries—are the biggest emerging markets.
More than 80% of the world’s population lives in these countries. Since 2008, these economies have accounted for 80% of the growth in global economic trade and output.
You would think this would have made them great investments. But emerging markets have actually been a horrible investment lately…
Take a look at the chart below.
It shows how the iShares MSCI Emerging Markets ETF (EEM), which tracks more than 800 emerging market stocks, performed from 2007 through 2015. You can see that it went nowhere.
You would have actually lost about 0.15% of your money if you held EEM over this period, and that includes dividends.
• Because of this, many investors have given up on emerging market stocks…
But that could soon change.
Last year, EEM gained 8.6%. It was its first annual gain since 2012.
This year, it’s already up 10%. That’s more than double the S&P 500’s 4% gain.
More importantly, it looks like EEM just “broke out.” Below, you can see it recently bucked a downtrend it’d been stuck in since early September.
• This is good news for emerging market stocks…
As we often point out, stocks usually keep rising after a breakout like this.
And that’s exactly what EEM’s done. It’s rallied about 6% since piercing its downtrend.
It’s now at the highest level since July 2015.
Of course, you probably want to know if emerging market stocks will keep rising.
Over the next couple days, we’re going to try to answer that question.
We’ll dive deep into the fundamentals of emerging market stocks. We’ll look at the good and the bad. By the end, you’ll know if emerging market stocks are right for you.
Let’s start with what we like about them…
• Emerging market stocks are much cheaper than U.S. stocks…
You can see this in the table below.