The Submergent Emerging Markets

Japan’s elderly now account for more shoplifting than its youth, reports Bloomberg. And Japan’s consumer prices year over year rose the most since 2008 according to another Bloomberg article. What a coincidence. Prime Minister Abe is doing something about the problem. He’s cutting welfare for the elderly next month. Good luck with that.

Japan is so worth watching because it has so many of the problems China and Europe will have soon. Poor demographics, enormous public debt and nincompoops in charge. How Japan goes, much of the world could go. Or it could heed the warning.

But enough of that half of the world and its woes. Let’s find something far more optimistic. Emerging markets look promising. ‘Developing economies now account for 50 percent of global output and 80 percent of economic expansion’ writes Reuters.‘…one McKinsey study projects more than half the world’s population will have joined the consuming classes by 2025, boosting consumption in emerging markets to $30 trillion a year.’

If you’re thinking ‘gotta get me some of that’, take heed. Emerging markets have had a tough time lately. This headline from says it all: ‘Not all emerging-market stocks are down this year.’ While the US indices were surging, the MSCI Emerging Market Index was down 10%.

The American ETF which tracks the Emerging Market Index shows how much returns have diverged from the S&P500 since 2013:

Emerging Market Index
Source: Yahoo Finance

With Greg Canavan predicting big trouble in fickle China, you might wonder where emerging markets fit in to Markets and Money’s outlook. Well, the Asian Tigers went through a financial crisis in the 90s. That would’ve been a good time to buy. They’re doing rather well now. Hong Kong, Singapore, Taiwan and South Korea are raking it in ‘Gangnam Style’. That’s the name of the annoying Korean song about a wealthy suburb of Seoul.

So are emerging markets a buy? And if so, how do you go about buying into them? And which ones? That’s a lot of questions to answer for one seemingly simple investment thesis. We’re working on answering them in this month’s Money for Life Letter. The backward countries of the world will catch up to the advanced ones. And there’s plenty of money to be made in the process. It’s the ‘how’ that’s tough. But, for the first time ever, Aussies can get in on the boom without having to move overseas or get lucky on the companies they pick.

It might get even easier to stake your claim on some emerging markets in coming years thanks to the Asian Funds Passport. The proposal would make investment across borders within Asia easier by standardising fund, financing and investment regulations and currency exchange restrictions. Australia, New Zealand, South Korea and Singapore are already on board and trying to convince the rest of APEC to sign up.

APEC representatives are set to approve a trial run of the Passport in September when they visit Nusa Dua, Bali. The last time they were there your editor was just down the road, beginning our short lived career as a flying trapeze artist. How far we’ve fallen…

It’s unlikely the rest of Asia will pursue the Passport opportunity once they take a look at Australia’s rules and regulations. Not to mention its regulators. Still, as the emerging markets emerge, they’ll become more popular places to park cash. It always pays to get in early before the horde of Super funds, Australia’s Future Fund and other investors pile in.

Then again, why bother investing overseas when you’re thrashing the rest of the world? This incredible chart shows how Australia’s median wealth is forty thousand dollars beyond second placed Luxembourg!

median wealth
Source: Yahoo Finance

That’s what a housing bubble will do for you. And what a burst housing bubble can do to the USA, Spain and Ireland. The median German, who probably rents, has about a fifth the wealth of the median Aussie.

It’s going to be very interesting looking back at the chart in a few years time. Just think of how much could change.



Nick Hubble+
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From the Archives…

Why There’ll Be More Fringe Benefits Tax-Like Bombs in the Future
19-07-13 – Greg Canavan

The End of The Economy Deformed by Easy Money
18-07-13 – Greg Canavan

A World Without Money?
17-07-13 ­– Bill Bonner

A Credible Threat to Gold?
16-07-13 – Greg Canavan

The Making of a Modern Debt Slave…
15-07-13 – Bill Bonner

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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