10/5/25
Are Emerging Markets Cheap Enough?
In This Week's Issue:
- Equity Markets
- Deep value in Emerging Markets
- Crypto Market Update
- Waiting for the Moment of Truth
- ZCASH
Equities
Deep Value in Emerging Markets
Itâs become common knowledge to, âjust put some money in the S&P and it will grow at 8% a yearâ.
Dave Ramsey is still recommending this for the average American and this has worked incredibly well over the course of his career. Not that it's bad advice but he has been advocating for this during the most prosperous time in American economic history.
In the last Skeptical Insight Newsletter, we looked at Japanâs bubble and how capital flows in cycles. Once one market gets overvalued, it's better to look for cheaper markets elsewhere.
As the US markets continue to rip higher, it is other markets outside the US that are screaming deep value. The risk that the US market now possesses is unknown to most and ignored by the rest.
Passive capital flows from 401(k)s and other investment vehicles have automatically aggregated capital to a point where, if one leg gets cut in half, the whole chair will fall over.
If youâre putting money in the S&P, you are investing 7% of that capital into NVIDIA and 34% into MAG-7 stocks that are all overvalued.
And what happens when the MAG-7 goes down by 50%? Now youâre down 17% in what you thought was the "safe" option.
The MAG-7 drove over 60% of the returns of the S&P in 2023-2024. Needless to sayââwithout the MAG-7, the S&P has been flat at best.
This alone drives me to other markets. Maybe itâs my world travel that has made me open to investing outside of my home base or...
Iâm just delusional.
Either way it seems to be working.
Below is a chart of the S&P vs. Emerging Markets:
Emerging Markets are as undervalued vs. the S&P in the last 27 years.
Talk about a nasty bear market. Most people are washed out and the majority of capital invested in these markets lives there. Other global investors have been scared off and wonât touch these markets with a 10-ft barge pole.
Below is the same chart (EEM vs. SPX) but the chart history only goes back to 2004, when the EEM ETF was created.
Brutal, to say the least.
Letâs have some fun.
First, I want to show you why the narrative doesnât always show the whole picture.
Here is the Greek stock market vs. the S&P:
It was down a bunch until 2021 against the S&P but has since created a nice bottoming formation.
Western media is telling you to buy the S&P, while the Greek stock market has quietly outperformed the S&P by 85% since our covid debarcle.
Nothing to see here, folks.
Below is the GREK ETF:
This thing has run like the police are chasing itââup 380% since March of 2020.
This one has got away from us now, but we can look around other emerging markets, as we have done with China, to see other places worth buying.
Hereâs the Brazilian stock market (EWZ) vs. the SPX:
Down 93% vs the S&P since 2008 and back to levels it was at before the Brazilian market took off. It smells like buying real estate in 2009.
Currently, the whole Brazilian stock market is valued at $739B USD compared to NVIDIA at $4.5T USD.
T for Trillions.
Needless to say, it wonât take much of a capital rotation for this to take off like the Greek market did.
Below is the EWZ ETF chart, which represents the Brazilian stock market:
Let me add the platinum chart to the bottomââlook similar?
Before we get ahead of ourselves, let's look into the fund.
It has a forward PE of 7.1, which is three times less than the S&P. Obviously, the Brazilian market has more perceived risk than the US market; however, it seems to be priced in already. Three times cheaper than the US market seems to be a little overkill to me.
What are they holding?
Finance, utilities and minerals make up 72% of the fund, which encapsulates a broad economy and is well diversified.
Several of the companies in the ETF are printing money. The ETF then pays a 5% dividend, so even if we donât see the capital rotation for a few years, I will get paid 5% to wait.
Iâm thinking weâll see a turnaround before long. Over the past 2 weeks, I allocated 10% of my portfolio to the EWZ ETF.
Crypto Market
Waiting for the Moment of Truth
The last week in crypto has been a rollercoaster ride as we fight into all-time highs for Bitcoin, TOTAL, TOTAL2 and several other charts.
The majority of this is a result of the Russel also tickling its all-time high.
We have similar price action and indicators pointing to our breakout post-covid. This is a positive sign, but we need the break to confirm expansion.
It feels like weâre on a knife's edgeââwaiting for the RTY to have a conclusive breakout to set the rest of the crypto market on fire.
At this point, I am being extremely cautious and am in the position to remove capital from this market if we reject this level again. This will be the third time taking a stab at it, and "third time's the charm," right?
ZCASH
On a more positive note, ZCASH (ZEC) has had a magical couple of weeks.
Someone put a rocket up its arse and it is now up 200% over the past two weeks. This oneâs been a slogââI brought ZCASH in 2023, with an average entry of $31.95, as it was bouncing off prior resistance in the hope that the privacy narrative would come to fruition. I was down 50% by July of 2024.
Yup, -50% on my hard-earned capital.
Now that it's up over 400% since 2023, it feels like some vindication for the pain that was endured.
It reminds me how fun torturous investing can be.
The ultimate marshmallow test.
It is also a reminder of portfolio management. When I brought ZCASH, it was only 7% of my crypto portfolio and was a play on the privacy theme. The transactions using ZCASH are nearly impossible to trace, so I figured that if people do use crypto as money, they wouldnât want their barista to trace how much money they have or donât have.
Being down 3.5% on a portfolio is more stomachable than 50%.
This could be a trigger moment for the privacy cryptos, even though I know itâs years away before we start using crypto as a means to transact.
As a side note, I will be de-risking from this position as we approach $250, as the 4.236 on the smaller range lines up with the 0.618 & 0.702 retrace on the larger range. If we get to that level, Iâll be up 800% and as my father often says, âthat's better than a clip around the ears."
Over the next couple of weeks, Iâll be closely monitoring the Russel to confirm its breakout, followed by the crypto market. If we see a clear 5-wave move to the upside on TOTAL with a drop in BTC.D, I would expect us to enter a phase of euphoria. At that point, I will be tracking the emotional sentiment via the Fear and Greed Index and the Coinbase app downloads. If this makes it to number one, I will be sprinting for the hills and dropping the bag.
If we do not get a break in the Russel and start breaking down structurally on both the TOTAL and TOTAL2 charts, I will look to de-risk a portion of my portfolio because thereâs no harm in taking profit when I see extreme risks in US equity markets.
Until then, may the market gods be ever in our favor.
Stay Skeptical,
Matt Lieshout
Ever wonder how I stay on top of dozens of positions without getting buried in spreadsheets? I built this portfolio tracker to manage my own holdings across stocks, crypto, and more. Itâs clean, powerful, and yours for free: Skeptical Investing Crypto and Stock Tracker
DISCLAIMER: This newsletter is not investment advice. It is provided solely for educational purposes. Our aim is to enhance your understanding and decision-making as an investor; however, you are solely responsible for conducting your own due diligence and consulting a qualified financial professional prior to making any investment decisions. Skeptical Investing and Matthew Lieshout reserve all rights to the content of this publication and related materials. Proceed with caution and at your own risk.
