With U.S. and global stock markets continuing to slide this week, the long-awaited market correction may be upon us. With the Japanese market sliding 4% overnight, it now looks like the current pullback may have more to go.
As I wrote in January, the overwhelming optimism for U.S. markets at the start of the year had made me cautious. My favorite sentiment indicators were showing that the market was overbought. And in my mind, a pullback was always a matter of “when” rather than “if.”
That said, it is worth keeping some perspective. With the S&P 500 still only about 5% off its record high, the market has to fall quite a bit before its hits a 10% pullback -- the technical definition of a correction. If the current pullback feels bigger, that's simply because you haven't really seen one since May 2012.
Of course, Mr. Market's Moodswings always demand an exhaustive explanation by the media. And with the U.S. economy showing strength and Europe back from the precipice of collapse, today's doom-and-gloom crowd has shifted its attention to that old standby, emerging markets.
After a go-go decade and a half in the sun, it's as good a time as any for a reprise of the last big emerging markets crisis. The last big crisis was launched by the devaluation of the Thai Baht in July 1997, and culminated with the collapse of both the Russian stock market and the hedge fund Long Term Capital Management in August 1998.
In a meltdown I personally endured as a mutual fund manager of several emerging markets funds at the time, I remember President Bill Clinton describing that emerging markets meltdown as “the greatest financial crisis since the Great Depression.”
How wrong he was...
Why I Think it is a Good Time to Buy Emerging Markets
While I don't manage the billions in institutional money I did during the crisis of 1998, investors in my “Global Gains” Investment Program are feeling the heat in global stock markets as well.
Among the 44 global stock markets I monitor on a daily basis, only five are up for the year. And chances are you haven't been overweight on star performers like Vietnam and Egypt.
Nevertheless, I think emerging markets will do well this year.
1)Investors Hate Emerging Markets
Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.