A huge “crisis investing” opportunity is shaping up… here’s how to profit
by Justin Spittler
The year was 1976.
South Africa was on the brink of a revolution.
Massive riots erupted in Johannesburg’s suburb of Soweto. There was literally blood in the streets as police killed hundreds of protestors.
It was the last place in the world you wanted to be.
Yet, Doug Casey packed his suitcase and boarded a plane for the crisis-ridden country.
Most people would never imagine doing this. But Doug saw the opportunity of a lifetime…a rare chance to make 10-to-1 returns.
You see, South Africa dominated the gold market back then. It produced 60% of the world’s gold supply. Its miners were incredibly profitable, too.
Plus, many South African mining stocks were paying 30% annual dividends. Some yielded as much as 75%.
Still, most investors were too scared to go anywhere near them.
• Doug used this fear to his advantage…
He bought a boatload of South African gold stocks at fire-sale prices.
It was a huge bet. But Doug knocked it out of the park.
That year, gold began its most explosive bull market ever. It surged from $100 an ounce to $800 in just eight years. That’s an incredible 700% gain.
Shares of beaten-down South African gold miners soared even higher.
Doug’s timing was nearly perfect. But make no mistake. This wasn’t beginner’s luck.
Doug’s hit dozens of home runs like this over the last four decades. He’s made enough money “crisis investing” to last him many lifetimes over.
He even wrote the book on this unorthodox investing strategy. That book, Crisis Investing: Opportunities and Profits in the Coming Great Depression, spent weeks on top of the New York Times bestseller list.
That’s why we write about crisis investing so much in the Dispatch. It’s one of the best ways to turn a little bit of money into an absolute fortune.
But here’s something even longtime Casey readers may not realize…
You don’t always have to invest in a crisis market to get “crisis prices.” You just have to buy something that most investors won’t go near.
Right now, that’s the case for a special kind of emerging market. As you’re about to see, these countries are some of the world’s fastest-growing economies. They’re also home to some of the world’s most efficient companies.
• I’m talking about frontier markets…
These countries are on their way to becoming emerging markets like India and China. They’re “pre-emerging” markets.
Kuwait, Kenya, Pakistan, and Vietnam are a few of the biggest frontier markets.
Most people have never even thought about investing in these places. They’re seen as too dangerous…too politically unstable…or even too “Third World.”
For a long time, this was true. But that’s starting to change.
Today, many frontier markets are safer bets than the U.S. stock market. I’ll explain why in a second. I’ll also show you how to speculate on frontier markets without ever having to step foot in one.
But let’s first look at why it’s so important to move some money outside of the United States.
• U.S. stocks are insanely expensive…
Just look at the S&P 500.
Right now, it trades at a price-to-earnings (P/E) ratio of 26. That’s 66% more expensive than its historical average.
Meanwhile, frontier markets trade at a P/E ratio of just 13. They’re half as expensive as U.S. stocks.
To be fair, cheap stocks are usually cheap for a reason. But there’s absolutely no reason frontier market stocks should be this cheap.
• Frontier markets are home to the fastest-growing economies…
You can see what I mean below. This chart shows the world’s 10 fastest-growing economies.
You may not recognize some of these places. But all but two of them (India and China) are frontier markets.
Now, that’s a small sample size. So, to prove that I’m not cherry-picking, consider this: 32 frontier markets are growing at a rate of more than 4% per year. That’s twice as fast as the U.S. economy is growing.
Booming economies aren’t the only thing to like about frontier markets, either.
• Companies in frontier markets are raking in dough…
According to Morningstar, companies in frontier markets have profit margins that are 1.5 times higher than their emerging market peers.
And they enjoy higher returns on equity (ROE) than emerging market companies.
(ROE measures how many dollars of profit a company generates for every dollar of shareholder equity. A high ROE means that a company can turn a little money into a lot of money. It’s a hallmark of an efficient company.)
To top it off, frontier market stocks currently yield around 4.2%. That’s more than double the S&P 500’s 1.9% dividend yield.
• In short, frontier markets are a fantastic speculative opportunity…
But most investors avoid them like the plague.
Again, that’s because frontier markets have a bad reputation. But they’re starting to shed that stigma.
Just look at Argentina, one of Doug Casey’s favorite frontier markets…
Now, you might find it strange that Argentina is considered a frontier market. After all, Argentina is home to Buenos Aires, one of the world’s most important metropolitan areas.
But the country has actually been an economic basket case for the better part of the last decade. That’s because the Kirchner family did just about everything they could to ruin Argentina’s economy from 2003 to 2015.
They nationalized some of the country’s most important businesses. They enacted all sorts of destructive regulations. They even lined their own pockets at the expense of the average Argentinian.
But the people of Argentina said “enough is enough” in November 2015. They elected Mauricio Macri to replace Cristina Kirchner.
Macri, the former pro-business mayor of Buenos Aires, wasted no time changing Argentina’s political climate. He cut taxes, eliminated currency controls, and made it easier for outside investors to invest in Argentina.
Investors took notice.
Just look at the chart below. It shows the performance of the Global X MSCI Argentina ETF (ARGT), which tracks some of Argentina’s largest stocks. You can see that it’s nearly doubled in value since December 2015.
Franklin Templeton Investments says the same thing is happening across the frontier world…
It explained how in a recent letter to its investors.
Not only that, Franklin Templeton reopened its Frontier Markets Fund last month.
This is a huge deal.
You see, Franklin Templeton is a major U.S. money manager. It oversees almost $750 billion. And it knows more about frontier markets than just about any other money manager on the planet.
In 2013, it closed its Frontier Markets Fund because the markets were too volatile. So, its recent decision to reopen it tells us these markets have become more stable. It also suggests that there’s a growing investor appetite for frontier market stocks.
In other words, a lot more money is about to start pouring into frontier markets.
• You must position yourself before that happens…
The easiest way to profit from this is to own a fund like the iShares MSCI Frontier 100 ETF (FM).
This fund invests in more than 100 frontier market stocks. It’s a diversified way to play the frontier market trend.
Just understand that FM is up 35% since January 2016. After a run like that, FM is due for a pullback. So, aim to buy FM on down days.
You should also treat frontier markets like a long-term speculation.
Plan to hold them for years. Don’t bet more money on them than you can afford to lose. Take profits when you get them. And use stop losses, which will automatically sell a position if it falls below a certain point. With something as volatile as frontier market stocks, we recommend a 35% trailing stop.
These simple steps will allow you to take advantage of this massive opportunity without exposing you to huge losses.
Delray Beach, Florida