What to do when emerging markets crash

Friday, 7 September 2018
London, UK
By Sam Volkering

  • Emerging market rout
  • A winery for 35 grand
  • From the mailbag

Apparently there’s a ‘rout’ on emerging markets. Things in Turkey, Argentina, Venezuela, most of Africa, and bits of Asia are getting slammed.

We know that there have been massive currency woes in Argentina, Venezuela and Turkey. We know that there are trade ‘tensions’ between China and the US, and that’s spilling over to other regions.

We know that right now the world is in a weird state of geopolitical flux that makes everything a little scary.

This has seen serious value wiped off emerging markets, most notably their currencies, over the last week. For example, the Argentinian Peso peeled off 13% of its value in a day last week. The next day, another 7%.

All this while the government increased rates to 60%. You read correct, that’s 60%. Against the US dollar, the Peso is down over 50%. And inflation is around 30%.

Of course, this pales into insignificance compared to Venezuela’s plight. Now it’s cheaper to use cash instead of toilet paper when you’re on the loo.

It’s a dire situation. And with all the political, financial, trade, and currency risk at stake, it’d be easy to get pretty down about the world. And it’d be really easy to feel average about the prospects of investments outside of Australia.

However, what you also need to consider is that there are plenty of pockets of opportunity outside Australia that you can look into, to circumvent these emerging market troubles.

Canada, which is Australia’s market doppelganger, is one of those areas. And while US/China trade issues persist, the US markets continue to deliver one of the greatest bull markets of all time — and in my view, there’s plenty more to run there too.

Then there’s the UK. Although Brexit looms large, their microcap market, the AIM is one of the hottest hunting grounds for hot stocks. Singapore is motoring on okay. In fact, it’s one of the best performing markets of 2018.

Then there’s Japan, which is in the midst of a manufacturing renaissance. The point being, as bad as things might seem, the reality is far from it.

And we know it’s far from it, because we’re in these places to see it and understand it first hand. That’s the only way you really get a feel for the layout of the land.

We know that international markets provide immense opportunity and it’s something I believe every smart investor should take a long hard look at.

But if you’ve really got an appetite for risk — and money you can spare — then there may be an opportunity in emerging markets, the likes of which you might never see again…or not for another 15 years at least.

Markets

Overnight the Dow Jones Industrial Average closed up 20.88 points, or 0.08%.

The S&P 500 gained 10.55 points, or 0.37%.

In Europe, the Euro Stoxx 50 index finished down 19.67 points, or 0.59%.

Meanwhile, the FTSE 100 fell 0.87%, and Germany’s DAX fell 85.21 points, or 0.71%.

In Asian markets, Japan’s Nikkei 225 is down 171.52 points, or 0.77%. China’s CSI 300 is down 0.057%.

In Australia, the S&P/ASX 200 is down 25.20 points, or 0.41%.

On the commodities markets, West Texas Intermediate crude oil is US$67.84 per barrel. Brent crude is US$76.45 per barrel.

Turning to gold, the yellow metal is trading for US$1,200.48 (AU$1,677.73) per troy ounce. Silver is US$14.12 (AU$19.74) per troy ounce.

One bitcoin is worth US$6,493.10.

The Aussie dollar is worth 71.53 US cents.

Anyone fancy some sauvignon or Semillon?

From 1998 to 2002, Argentina went through a ‘Great Depression’. The government fell. The country defaulted. By 2002 inflation was out of control and at a cumulative total of around 80% for the year.

But the instability, the economic devastation, the rioting all eventually ended. Argentina returned to growth. The currency recovered. Living standards and real wages increased.

Argentina seemed to be back on track.

This current state of affairs seems to be history repeating. And we may very well see another period of depression in Argentina.

But it was during the depression when savvy investors saw Argentina as an opportunity for wealth creation. In 2006 — just a short couple of years after the worst of the crisis — property prices in Buenos Aires rose 25%.

According to Financial Times, apartments in one of the nicest areas could be bought for US$800 per spare meter. This year — around 15 years later — those properties were exchanging for around US$3,400 per square meter.

This could be another chance to snaffle up some global property on the cheap.

For example, if you’ve always had the dream to own and manage a winery (as you do) then Argentina might be about to present the best chance to own a winery you’ll ever get.

An emerging wine region, parts of Argentina, such as around Mendoza, are exceptionally good for grape varietals such as sauvignon and Semillon. The climate is particularly kind to these grapes.

And for a cool US$35,000 you can buy an 89-acre winery with a three-bedroom house, another house with three bedrooms for workers, two warehouses and barns.

There’s electricity, all the equipment and trucks. It’s everything you’d want from a winery in one of the world’s great wine regions. And it’s on the doorstep of Mendoza and San Rafael…for $35,000.

Now maybe that’s not your style. But in situations like this, there’s still money to be made. Maybe it’s an apartment, maybe it’s a vineyard. Or maybe it’s just dipping into international stocks on overseas markets.

Trouble and turmoil can be scary — but they can also present massive opportunity.

Speaking of massive opportunity…

It’s not just on the real estate markets where you can find golden opportunities on beaten down assets. We’re currently running a special ‘masterclass’ project looking at some of the tiniest stocks on global markets. This is a sector with some incredibly lucrative gains to be made — along with a healthy dollop of speculative risk! But if you know what you’re doing, and aren’t afraid to put a bit of ‘play money’ that you could afford to lose on the line, you could find some potentially life-changing gains.

The masterclass on how is free to any paid Port Phillip Publishing subscribers. Find out more here.

And a little something from the mailbox…

Finally, last week we looked at the potential for bitcoin to provide an alternative to people in Venezuela.

We noted how the Weimar Republic went through similar hyperinflation before a newly created, publicly accepted currency formed part of the slow way out.

Well, thanks to our look at how bitcoin functions in these struggling emerging markets, we got some mail from reader, John.

It reads,

I’ll be straight to the point I did not even read the whole article but you guys are a little late on pointing out the features of bit coin in hyper inflation situation and little late on crypto full stop.’

Thanks for the letter John. Shame you didn’t read the whole article. And it’s a shame you’re a little late to our coverage of crypto.

I guess you’re right in the sense we were a little late to the crypto party (so to speak). I mean, after I started writing my book, Crypto Revolution: Bitcoin, Cryptocurrency and the Future of Money in 2016, it did take us until around June 2017 to publish the finished copy.

Note: if you still haven’t read my book, you’ll soon be able to purchase it in print form or as an ebook through Amazon — more on that in the coming weeks.

Also, when I first recommended Bitcoin as an investment to subscribers of Revolutionary Tech Investor in November 2016, I was a little late there too. After all it was trading at US$742 at that point. That was about 642% higher than when we’d first started writing about it to Port Phillip subscribers, in late 2013.

And when I tipped Ethereum in April last year, it was at US$54. Again, that was more than 1,000% higher than it had been only just a year earlier.

So yes, we’re sorry we were late, if not quite as late as you may think. We are working day and night to make sure the next world changing trend we uncover will get to our readers as soon as possible.

Until next week,
Sam