By luck or by skill, Jeremy Grantham delivered the best stock-market forecast in our entire generation…
In 2001, Grantham correctly predicted that U.S. stocks would be the worst-performing asset class for 10 years. They were.
But this was more astounding: He looked at 11 major asset classes and put them in order by how well he thought they’d do over the next decade. He got the order almost exactly right. (None were more than two spaces from their actual rank.)[ad#Google Adsense 336×280-IA]It was the most accurate prediction of asset returns I have seen in my career.
And he just came out with his latest prediction…
These days, Grantham does seven-year predictions, not 10.
And he puts them out every quarter.
There’s only one paper asset he believes will outperform over the next seven years… stocks in emerging markets.
Grantham expects emerging-market stocks to return 7% a year AFTER inflation.
Grantham assumes inflation will be about 2%, so that’s a 9% return per year on emerging markets.
According to Grantham, no other financial assets will come close to the return of emerging-market stocks.
What’s so great about emerging-market stocks right now?
In my mind, EVERYTHING. I look for three things in an investment… I want it to be cheap, hated, and in an uptrend. We have all three today in emerging markets.
I wrote about this a few weeks ago to paid subscribers of my True Wealth newsletter. Specifically, I said:
The stampede OUT of emerging markets this year has been stunning…
In the five weeks ending June 30, $24.5 billion fled emerging-market stock funds (according to EPFR Global, a research firm that provides fund flows data).
That was the largest five-week outflow ever recorded – the very definition of hated. Brazilian stocks, for example, lost roughly a quarter of their value in just two months. That’s “blood in the streets” (without any actual blood in the streets). Did Brazil just get 25% worse in two months? I don’t think so!
The values this stampede has left behind are just crazy… Companies are about as close to “free” in price as you will ever see. And now, finally, we have our glimmer of an uptrend.
Emerging-market stocks bottomed in late June…
Smart traders should buy now and set a stop loss at the late-June lows. Your downside risk is limited… and your upside is triple-digit profits.
The most popular way to trade emerging markets is through shares of the iShares MSCI Emerging Markets Fund (EEM).
Grantham correctly called the top in stocks in 1999, and he called the bottom in stocks at the end of 2008. Now, he says emerging-market stocks will be the only place to make “real” money over the next seven years.
If you don’t have much exposure to emerging markets yet, now is a great time to open a new position or add to your holdings… Shares of EEM are a simple way to do it.