What a day.
The S&P/ASX 200 index gained 1.5% yesterday.
The bull market is in full flow.
Only it isn’t. Even after yesterday’s big gain, the index is still 99 points below the recent April high. And the index was higher than this just last week.
So if you look at the market today and worry you’ve missed out, stop worrying. You haven’t missed anything. Remember, we’ve pegged this market to hit 7,000 points by January of next year. Now is exactly the time to buy before the market really hits its straps…
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It was a big day for Australian stocks.
Wesfarmers [ASX:WES] gained 2.75%.
Rio Tinto Ltd [ASX:RIO] added 2.56%.
Macquarie Group [ASX:MQG] put on 1.71%.
And Australia & New Zealand Banking Group [ASX:ANZ] went up 1.67%.
What caused it all? Why would Aussie stocks go up after falling since last Friday?
If you read the mainstream press they’ll give you a reason. But here’s the real story — don’t tell anyone — it’s the same story as it has been all year: low interest rates.
It’s the interest rates in the West
We can’t help but chuckle.
Theories abound for why Australian stocks went up yesterday.
One theory we saw in the Australian was that it was all down to the higher-than-expected Aussie trade deficit.
Another was that it was because of the stronger Australian dollar (of course, in a few days you’ll probably see stories telling you that the market has gone up because of a weaker Aussie dollar).
But the reality is much easier and more obvious than that — interest rates.
It continues to amaze us that so few people get this. They keep looking for other reasons why stocks are going up — consumer confidence, unemployment, inflation, business confidence, and so on.
You name it, they’ve used it as an excuse.
But is there another reason for the Aussie market’s strong day? Does the rebound in China and emerging markets — or frontier markets as we call them — have anything to do with it?
Well, we can’t with a straight face say that Macquarie, ANZ and Commonwealth Bank of Australia [ASX:CBA] shares went up yesterday because of emerging markets.
These stocks and most others on the ASX went up because of low interest rates. And if we’re right about where interest rates are going (down) we’ll tell you right now that Aussie stocks will keep going up…all the way to 7,000 points.
But what about BHP Billiton [ASX:BHP] and Rio Tinto shares? That surely has to do with frontier markets, right?
No doubt.
China holding back ‘frontier’ markets
There is a big change happening right now in world markets.
This change is on a scale that few can comprehend. That’s why we’ve taken to calling it a megatrend. It’s why we’ve even organised a ‘short course’ to cover the details of this phenomenon.
You can check out the details and enrol for free here.
Although we have no doubt that this megatrend has benefited from low interest rates, it’s now reached the stage where it has its own momentum.
And you only have to read the report in yesterday’s Financial Times to get an idea of how much momentum is behind it:
‘[Macau] recorded per capita gross domestic product of $91,376 in 2013, behind Luxembourg, Norway and Qatar. The Chinese territory overtook Switzerland – which was worth $80,528 per person – with an 18.4 per cent jump that was driven by buoyant gaming revenues.
‘Since Macau was returned to China in 1999, its economy has grown 557 per cent as the territory of 607,000 people has been transformed into a gambling mecca.’
Macau isn’t the only booming market. And neither is China. In fact it’s our view that China is only a part (albeit an important part) of the overall emerging markets trend.
If anything, the Chinese market as a whole has held back ‘frontier’ markets.
You can get confirmation of that simply by looking at a one-year chart. The following chart shows China’s CSI 300 index (blue line) compared to the iShares MSCI Emerging Markets Index ETF [NYSEARCA:EEM] (red line):
In terms of its importance on world trade China is huge.
But in terms of its impact on the domestic stock market in recent years, China has been a dud. But as with any index, remember that it’s an average of stock returns.
That means some stocks have done much better than the average, and some stocks have done much worse.
That’s why before you try to invest in any of these markets you need to build up your knowledge of what they’re about and where they could go next.
It’s the real growth in the East
So where are they going? The easy answer is that frontier markets stocks are going in one direction over the medium to long term — up.
Bloomberg reports:
‘Emerging-market stocks rose, with the benchmark index climbing to a 13-month high, and European shares gained for a second day amid growing confidence in the global economic recovery. The pound strengthened, while Indonesia’s rupiah and Australia’s dollar weakened.’
Bloomberg must be looking at some other Aussie dollar. Because the Australian Aussie dollar was doing quite nicely yesterday afternoon when that Bloomberg report came out.
The simple fact is that there are two different dynamics ruling the world’s markets right now. The split is right down the middle. In the Western markets the key drivers are low interest rates.
That’s all it is.
By contrast, in the frontier markets the key drivers are innovation, urbanisation, and industrialisation. In other words, what in the ‘good old days’ you might call real economic growth.
Both will lead to rising markets. But like those crummy ads for industry super funds on TV, one of those markets will make you this much, while the other market could make you THIS much.
It’s no exaggeration to say the potential in the frontier markets is mind blowing. Of course, with the markets at this high point, some goons will start sounding the claxon claiming that a crash is imminent.
Don’t fall for it. All markets are volatile, and you’ll get plenty of ups and downs in Aussie and frontier markets. But this is one medium to long-term opportunity that you don’t want to miss just because of a few bumpy days on the market.
As we’ll show Megatrend Master Series enrolees starting Saturday, the potential gains on offer when these stocks really kick off could be bigger than most people can possibly imagine.
And what’s more, we’ve got the historical proof to show that it is possible, and from my analysis it will happen again…soon.
Cheers,
Kris+
PS: If you haven’t enrolled for the free Megatrend Master Series you can find out more about it right here…
