News Analysis date published New: 
Wednesday, July 25, 2012 - 13:00
New Date created: 
Wednesday, July 25, 2012 - 13:00
New Date last updated: 
Wednesday, July 25, 2012 - 13:00

Another Emerging Market Chart Every Investor Needs to See

Wednesday, July 25, 2012 - 1:00pm

Last week, I told you about a major opportunity in the emerging markets. Despite steadily growing their contributions to the global economy during the past five years, stock markets of the BRIC countries (Brazil, Russia, India and China) have taken a beating in 2012. All told, the exchange-traded fund (ETF) iShares MSCI BRIC Index (NYSE: BKF), for instance, is down more than 33% since 2007.

Assuming the world's financial system staves off another global catastrophe like we saw in 2008, now could be a good time to pick up some of the world's fastest-growing stocks at incredible prices.

This isn't the first time we've seen an opportunity like this either. Take a look at the charts below.

The chart on the bottom shows the price of iShares Emerging Markets Bond ETF (NYSE: EMB) compared with the price of Guggenheim BRIC ETF (NYSE: EEB).

In other words, the chart is showing the demand for emerging market bonds compared with the demand for BRIC equities. When the chart is rising, investors prefer bonds over stocks -- a bearish sign for equities. When the chart is falling, investors are bullish on stocks.

As you can see, investors haven't been this bearish on BRIC stocks since 2008... and that was at the heart of the recession. Back then, EEB fell from a high of more than $52 a share to an all time low of $17 a share.

Within a year, EEB rallied back up to more than $42 a share... a 147% gain in a slightly under 12 months. By comparison, the S&P 500 only returned 48% during that period.

As of July, investors are in fear. The European debt crisis, a slowdown in China, high unemployment in the United States and a whole host of other economic problems have scared investors out of BRIC stocks and into bonds.

This trend can't last forever. The BRIC countries are growing... and fast. In the past 10 years, the BRICs have contributed to half of the world's growth. That trend isn't going anywhere either. The BRIC economies will likely constitute 40% of the global gross domestic product by 2050 -- up from 20% today, according to Goldman Sachs.

Once the global economy starts to rebound, it shouldn't take long for investors to return to these markets.

Risks to Consider: Economic uncertainty has weighed on the valuations of the emerging markets lately. Until there's a clear sign of a recovery, it could be a while before investors return to BRIC equity markets.

Action to Take --> It's estimated that BRIC economies will overtake the developed economies that make up the G7 by 2027. Once the economy gains some momentum, we may never see BRIC stocks traded at such depressed valuations again.

If you're thinking about investing, then the easiest way to gain exposure to this space is with an ETFlike SPDR S&P BRIC 40 (NYSE: BIK).

Austin Hatley does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.