I’ve been warning, since early 2013, that emerging markets have been underperforming global markets. The biggest reason is simple: My 30-year commodity cycle peaked between mid-2008 and early 2011, right on cue, and falling commodity prices mean falling stock prices in emerging countries. Their stocks actually correlate more closely with the commodity price index (CRB) than they do with U.S. or developed country stocks.
There is a vicious circle wherein commodity prices fall, then emerging market economies and stocks slow due to their exports falling, then that hurts China who now exports more to emerging countries than developed ones, and then that further hurts commodity prices because, after all, China is the largest consumer of resources in the world.
This long term commodity price cycle doesn’t bottom until around 2023. That’s 10 years from now. Even though emerging markets have strong demographics, this factor is more important to their stock markets. Their most profitable industries are their commodity exports and the financial institutions that finance them.
Emerging countries are NOT the place to be with a major global crash ahead in 2014 to 2016. In fact, they’re the very leading indicator of it… like falling U.S. real-estate values were before the 2008 crash.
Select ones, like India and Mexico, will be the best places to buy when markets do crash. They’ll more broadly be the best long-term stock sector in the next global boom, that will be accompanied by a strong boom in commodities.
But for now, expect the pain in emerging markets to get worse before it gets better. These countries will endure waves of collapse, like the one they’re seeing now. So for the time being, steer clear of these countries.