These Markets Aren't Emerging, They're Exploding

Look, it's not that "emerging markets" is a loaded term. In fact, it's a pretty exciting one. You're talking about countries that are transforming themselves in a few short years from being highly dependent on their ability to sell raw materials to the West into dynamic, information-driven economies with burgeoning middle classes and plenty of domestic consumption.

Yes, they're emerging. But that sounds a bit like a butterfly emerging from a chrysalis. This is different. These countries are blowing up.

If you look at the performance of indexes tracking some of the biggest emerging markets, you'll see shapes ranging from mountain-climbing to parabolas to moon launches. China, Brazil, India, Argentina, Vietnam, and Mexico have all seen their stocks markets double, triple, or more in the past three years.

America’s economy is too developed for the kind of explosive growth taking place in much of the developing world.

China, for example is on the move. Not in the way you think, with its ever-expanding external influence. No, China has 200 million people living comfortably and another 1.1 billion who aren't but would like to be. The result is the greatest migration in the history of humankind. Each month, the major Chinese cities receive enough new inhabitants that they need to build the equivalent of Houston - infrastructure and all - to handle them.

India's economy has heated up to the point where the government is trying to build stronger restrictions against foreign money pouring in to invest in the country. Yes, on a per-capita basis, India is poor. But by the same measure, they're turning money away at the borders. Even countries you don't think of immediately, like Vietnam, Argentina, and Malaysia, are enjoying staggering growth rates.

Obviously, you'd like to get involved with markets like these before they take off, so unless you've invested in them already, you've missed some enormous gains. But let me make three points: one historical, one prospective, and one differential.

Point 1
The historical one is this:

In hindsight, was 1987 a bad time to invest? Heck, no, for the very reason that the American economy was still at the beginning of a great transformation. The big fortunes were still ahead. Sell in 1987, and you're kicking yourself for the next 20 years ... and counting.

Point 2
By this same measure, the transformation ongoing in emerging markets worldwide is still in its infancy. It's going to continue -- in fits and spurts -- for decades. The growth prospects in China are still virtually limitless.

Point 3
And finally, the differentiation. While China and India have enjoyed salubrious rises in their share prices, they started at an extremely low base. Many people shun emerging-market investing because of the risks, the lower level of regulation, or the lack of protection. And they're right to be concerned. But things are improving in every country that has companies coveting Western capital, with the possible exception of Russia.

In fact, what I do every day is advise clients on these issues.