CHAPTER TWO

 The Price Is Right on the Other Side

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Stocks in Emerging Markets Are Bargains

The Home-Country Bias and the Likely Future

Flows of Funds into Emerging Markets

Four Fundamental Reasons Why Rapid Growth Will Continue

Economic Freedom Is Everywhere

The People Are Smart and Thrifty

High Technology Has Already Arrived

The Financial Undergrowth Is Impressive

  Could We Be Wrong?

 

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Successful investment decisions in the stock market have two important elements. First, the companies in which you invest need to produce substantial growth. As we argued in Chapter One, emerging markets provide the most exciting growth prospects in the world at the start of the new millennium. But investment mistakes can still be made even if the anticipated growth materializes. You can always lose money if you pay too much for your purchases. You might buy a stock that doubles its earnings as expected and still lose money. If you pay 100 times earnings for the initial purchase and the earnings multiple for the shares drops to 25 after the growth has occurred, you will lose half your original investment. So before you send your money traveling overseas, you need to insure that the second element of successful investing is met -- be sure that your purchases are made at bargain prices. Throughout the 1980s and most of the 1990s, the stock markets in most of the developed world have been booming. But as stock prices have soared, especially in the United States, bargain hunters are provided a perfect opportunity to consider financial travel to emerging markets. Relative to stock markets in the developed world, emerging-market stocks have rarely been so cheap. In this chapter, we will tell you why we believe emerging markets offer the best bargains available for the investing public.