Over the past few months I’ve often brought up the performance of emerging markets in 2018 and how they are a sharp contrast to the performance of US stocks.
There are only so many hours in the day. Jack Ma, founder of Alibaba Group Holding Ltd [NYSE:BABA], found that out the hard way. If we look at places like China and India on an economic scale, both of these countries will learn the same lesson. What does this mean?
What if something more fundamental is going on that we don’t really know about yet? This is the scenario I’m leaning towards, and it all comes down to the poor performance of the emerging markets this year.
As you know, Turkey is in the financial market spotlight again. Turkey’s currency plunged again Monday, rattling other vulnerable emerging markets, as a defiant speech from President Recep Tayyip Erdogan.
Why is sharing a good thing? China and India have benefited from trade with more advanced countries like the US. And as they become more advanced, the US will also enjoy the benefits.
Are tech stocks immune from a global slowdown? Well, they actually generate nearly 60% of their revenue from overseas. That makes them highly vulnerable to sanctions if the trade war does escalate.
In less than eight years, Uber has built a billion-dollar empire. They’ve disrupted more than just taxis. But there are places where even the mighty Uber cannot compete.
The message here is clear. The US Federal Reserve is slowly draining excess liquidity from emerging markets. That makes investing during these times particularly tricky.
You only need two things to find wonderfully cheap stocks. The first is earnings yield. The second is return on invested capital. This is a great way to find amazing gems hidden in the market.
Should you invest in India? Why not? Successful investing usually works everywhere. So why wouldn’t it work in India?