Even Goldman Sachs Sees Opportunity in Emerging Markets

As an investor you should never stop learning.

You should always keep your mind open to new ideas.

Even if those ideas sound odd.

And even if those ideas are the polar opposite to your own beliefs.

It’s OK to dismiss those ideas later. But you should always consider them first. You never know, sometimes those ideas may have merit.

It’s how we came to pay more attention to the forecasts of banking public enemy number one, Goldman Sachs…

You’ll forgive our laziness if we don’t look for the exact date. But as we recall, sometime in late 2011 Goldman Sachs made a big call on gold.

The call was that gold was too high and that the price would fall. We laughed at the time — ‘How could gold fall? Central banks were printing money day and night.’

We may have got the date wrong, but Goldman got the call right. The gold price fell…a lot. Back in 2011 gold nearly hit US$2,000.

Today it’s barely holding above US$1,300.

Well, earlier this year Goldman Sachs made another call. So far it hasn’t quite gone to plan. But Goldman is sticking to its guns. And as much as it galls us, we agree with Goldman on where one particular market is going next.

Second half stock rally

Yesterday was another good day for Australian stocks.

It was a good day for the US market too. The Dow Jones Industrial Average closed above 17,000 points for the first time ever — cue the claims that this is the top of the market.

The S&P/ASX 200 added 35.8 points. That’s good. But the index is still 63 points below the April high. And unlike the US market, the Aussie market is still a long way from the all-time high set back in 2007.

In short, despite the nice two-day stock rally, it’s still a great time to buy this market. And if Goldman Sachs is right, it could actually be a perfect time to buy into the market.

Or one specific market anyway. As Bloomberg reports:

‘Chinese stock bulls, battered by the world’s worst first-half losses, now have history on their side.

‘While this year’s 3.4 percent drop in the Hang Seng China Enterprises Index (HSCEI) thwarted optimistic forecasts by Goldman Sachs Group Inc. and Morgan Stanley, the second half has proven a much better time to buy during the past decade. The gauge of Chinese shares traded in Hong Kong rose an average 12 percent from July to December, versus a 1.1 percent gain in the first six months.

‘China’s stock market tends to rally in the second half as the ruling Communist Party takes steps to meet its economic expansion targets, according to RBC Investment Management (Asia) Ltd.’

It’s hard to say that Goldman completely stuffed up its forecast. A 3.4% drop for a volatile market like China isn’t a disaster.

As for the rest of this year, a 12% gain? We’ll take that.

Saying that, 12% is terribly small as far as we’re concerned. It hardly seems worth the risk.

But don’t let the relatively small forecast gain for China’s market fool you. The Chinese market is a hotbed of innovative and fast-growth companies that could gain many times the small double-digit average.

So forget about the 12%. We expect much bigger things. If we could only get a 12% gain out of China, we’d see that as a loss!

It starts Saturday

If you don’t believe us about the growth potential, we suggest you check out the Megatrend Master Series that starts on Saturday.

You can find out more and register for free by following this link.

Our view on China and other ‘frontier’ markets is that they are ready to emerge from the doldrums. Some markets have already started to move. Others, like China, have barely gotten started.

And although we think of ourselves as a contrarian investor, moving in on a market before the rest of the crowd, it’s never bad to see some of the big players taking a keen interest in a market too.

In this case Goldman Sachs clearly sees what we see when it comes to China and emerging markets. The only difference is we’re after much bigger gains.

The reason we’re looking at China and other ‘frontier’ markets is because of the megatrend opportunities. By that we mean the kind of gains stocks can make when a market and economy is going through a seismic shift.

In those situations you’re not looking for double-digit gains…you’re not even looking for triple-digit gains — you can get those on the Aussie market too as we’ve proved time and again in Australian Small-Cap Investigator.

These gains are ridiculous

When the market is at such a critical point as it is today, with one giant emerging economy getting set to supplant a giant developed economy, that’s when you get truly once-in-a-multi-generational type of gain.

The numbers in question are almost too ridiculous to mention.

But if you thought, as we did until recently, that it was almost impossible to make big multi-digit gains from large-cap stocks, think again.

We’ve found the markets where these gains are possible. China is one of those markets. But there are many others too.

And the best way to do it is to invest in individual stocks. That way it’s possible to chase the big multi-digit opportunities.

As we say, it pains us, but Goldman Sachs has this dead right. Now is the time to bet on China and the rest of the emerging markets story, before those markets really take off.

Cheers,
Kris+

Read the rest of this article at Money Morning