Why You Want to Invest in the 'Next Chinas' Now

China's incredible growth story... The stunning stock market winners it led to... Why you want to invest in the 'Next Chinas' now... Here's a head start on finding them... Follow the middle-class boom... It's easier than ever before...

China's economy grew so fast that a lot of people missed what was happening...

The spectacular growth happened that quick. Let me (Brian Tycangco) explain...

You see, for a good stretch of the first decade of this century, China's economy was growing an average of 10% a year, and often faster...

The country's gross domestic product ("GDP") grew at a greater rate each year from 2002 (9.1%) to 2007, when China's GDP hit a 15-year high of 14.2%.

Yet despite the big numbers, it never really dawned to many outsiders just how big of an impact this was having on China's people... and what that meant for investors.

I don't blame anyone for this. It's hard to "see" half a billion people being lifted out of abject poverty into the ranks of the middle class, especially when it's happening halfway around the world.

Social advancement on that scale – and speed – shocks the rest of the world into thinking, "Hey, weren't they always this rich?"

They weren't. And China's not alone in proving this story out...

The U.S., a long time ago, saw similar periods of growth that led to massive riches...

The thing is, you have to go back about 100 years to find them...

Back to the Second Industrial Revolution, around the time Henry Ford's cars were just beginning to be mass produced... and when electric powerlines and railways spread to every corner of America.

Or we'd have to look at the years immediately after the Great Depression... and "more recently" in a brief period (two years) following the end of World War II.

In other words, it's been a while...

An economy that grows an average of 10% for a decade isn't just an achievement for any country. It's a modern-day miracle. And the growth creates a whole new generation of wealthy entrepreneurs and a bigger middle class, who end up spending more, and growing the economy even more.

It results in marshes and farmland transforming into sprawling metropolises, not in decades, but in years. It means laying out an entire system of high-speed railways long enough to go around the world in just 15 years.

And it brings astonishment to those who notice, like China's neighbors in Southeast Asia did. Lee Kuan Yew, who many regard as the Father of Singapore and who was the country's prime minister from 1959 to 1990, once wrote...

There was nothing that Singapore had done which China could not do, and do better.

You likely have an opinion about China today... regarding its role in the pandemic... the "trade war"... or anything else.

But for better or worse, China's newfound wealth changed the world in ways we previously thought unimaginable...

I've had a front-row seat to China's growth story...

For the uninitiated, I joined Dr. Steve Sjuggerud's research team a little more than a year ago as an Asia-based analyst. I was born and raised in the Philippines, the series of islands along the South China Sea, and still live here with my wife today.

I have been living smack-dab in the middle of this massive opportunity – an Asian market that has largely been off limits to individual investors for too long.

And I've seen for myself the life-changing gains that are possible...

It started with my dad, who taught me about the stock market when I was just barely a teenager. He was a surgeon by profession. But that wasn't exactly a path to riches in the Philippines.

Instead, it was his stock investments in this part of the world that afforded us a beautiful home worth millions of dollars... not to mention a huge diamond ring for my mother.

I became instantly hooked on investing...

After graduating with a degree in economics, I started learning the ropes. I paid my dues, working for scraps as a stock trader.

In a couple of years, I was doing research for banking giant BNP Paribas, analyzing food and beverage companies...

That's when I pitched our firm's investors on a little-known restaurant...

You've probably never heard of Jollibee Foods (JFC). And that's understandable...

But the company only went on to clobber McDonald's (MCD) in the Philippines – a country with 100 million consumers.

Today, Jollibee is still beating McDonald's in the Philippines. It has even branched out overseas, including many parts of the coastal U.S.

Along the way, the company has managed to buy up Burger King's local partner, as well as build the Philippines' largest pizza chain.

Investors who got in early could have made as much as 3,325% on our trade.

I bring this story up to point out these are the type of unimaginable returns you can find in the "next Chinas," if only you don't miss the opportunity.

It still surprises me that a lot of people still have a hard time figuring what has driven China to become so successful...

But the answer couldn't be simpler. It's the middle class...

In the same way a booming middle class did wonders for the U.S., China's middle class turned the country into the world's largest consumer of just about everything you can think of.

Take what we see in tourism for example...

For decades, American travelers were the most prolific and highest-spending tourists trotting the globe.

Today, Chinese tourists have effectively grabbed the throne. They travel the most of any nationality... and they spend the most as well. They love to flaunt their wealth, too.

Take a trip down the luxurious shopping center of Champs-Élysées in Paris and you'll see Chinese forming lines outside Louis-Vuitton, Hermes, and Chanel. It's like they're on a mission to spend their money.

Before COVID-19 struck, Chinese tourists were spending over $100 billion a year on travel-related expenses in the U.S. alone. Globally, they splash around three times that amount.

They've also become one of the world's largest investors in overseas real estate. And they've developed a taste for pricey locations, including New York, San Francisco, Vancouver, and Sydney, Australia.

If you were to ask people living in these world cities what's driven up the value of real estate in their hometowns, the answer will likely be the Chinese buyers.

The 'Next Chinas' are right next to China...

A wise gold investor and dear friend once told me, "If you want to find gold, look in properties located next to where lots of gold have already been discovered."

When it comes to growth and opportunity, China has been the mother lode.

But it hasn't been so easy to see...

A thriving economy typically goes hand-in-hand with a thriving stock market. At least that's how it's supposed to work.

But for 19 of the last 20 years, China's stock market has been bouncing around like a yo-yo. And despite growing by more than 10% a year in the first 10 years of this period, the average annual gain in the Shanghai Composite Index was barely half that.

By all measures, it was a failure... but not if you looked beyond the headline index like I did. This is why Steve hired me to work on his True Wealth Opportunities: China newsletter.

While the Shanghai Composite Index only managed to more-than double in the first 20 years of this century, there were huge individual winners...

A company called NetEase (NTES) gained nearly 15,000%...

Another company called Tencent (TCEHY) did nearly three times better. Its shares grew 44,300%. And it only took Tencent 16 years to do it...

Both companies have overshadowed even the stellar performances of U.S. giants Amazon (AMZN), Apple (AAPL), and Google parent Alphabet (GOOGL) by orders of magnitude...

Then, you have latecomers like Alibaba (BABA) and JD.com (JD) – China's two largest e-commerce businesses that have delivered huge gains for investors even during the pandemic.

Their shares are up 30% and 117%, respectively, since the beginning of the year.

But while there's still a lot of 'gold' to be found in China, the easy discoveries have already been made...

You'll need to do plenty of digging from here on out.

China's explosive growth was powered by its growing middle class.

By 2022, more than 250 million urban households are expected to have joined China's middle class, which is up about 100 million from 2012.

The country continues to add 24 million city-dwellers to its middle class each year. But it's simply not having the same economic impact as it did 20 years ago. The base is now too big.

Meanwhile, the Next Chinas are just at the beginning of that steep upward curve in the middle-class boom.

The rest of Asia's emerging markets, including the Philippines, had a front-row seat to China's economic miracle. And they don't want to be left behind.

I'm talking about countries like Indonesia, Malaysia, the Philippines, and India...

For the last 10 years, these markets have been growing 5% to 7% a year, almost nonstop. That puts the region – with a market of nearly 2 billion people – about where China was at the start of the century.

And now the middle class in this part of the world is growing faster than anywhere else, even China.

And this trend is setting the stage for a monstrous surge in economic growth – the likes of which transformed China from a backwater agricultural state into the world's second-largest economy.

Where else can you find 85 million new buyers each year?...

These markets are just at the beginning of that steep upward curve in the middle-class boom.

India, for example, is growing so fast, its middle-class population is expected to balloon more than sevenfold to 580 million between 2018 and 2025. That's 70 million people joining the ranks of the middle class each year.

Another large Asian nation is Indonesia. Its population is only about 50 million people smaller than the United States'.

According to the McKinsey Institute, its middle-class population will reach 135 million by 2030, up from just 52 million today. That's another 8 million or so people in the Next Chinas going up the socio-economic ladder each year.

If you include Indonesia with other emerging economies of Southeast Asia, like Malaysia, the Philippines, Thailand, and Vietnam, the number doubles to more than 15 million a year.

So what I'm talking about right now is a part of the world where 85 million people are joining the middle class every single year. That's basically the size of Germany.

That is potentially demand for 85 million new houses and condominiums... cars and SUVs... refrigerators and washing machines... computers and flat-screen TVs. The list goes on. And, that's on top of the existing demand.

When you're faced with this intense level of wealth creation, it's fertile ground to give birth to future Amazons, Apples, Tencents, Alibabas, and NetEases.

In other words, if you want to find the next 10,000% winners of the coming few decades – or if you just want to double your money fast – China's neighbors are a good place to start looking.

A deeply underpriced group of markets...

Without a doubt, we're in a brand-new bull market. The benchmark S&P 500 Index and Nasdaq Composite Index are at record highs.

Looking at share prices on the ticker screen, it's like COVID-19 never happened.

The U.S. now has its first $2 trillion company in Apple. I doubt it will be alone in that category for long.

But every 1% or 2% daily gain in the markets from here on means notching up a few more points on the valuation scale.

The S&P 500 is now trading at its third-highest valuation in recorded history based on its cyclically adjusted price-to-earnings ("CAPE") ratio.

Meanwhile, a basket of emerging markets that excludes China are currently trading for less than half the U.S. CAPE ratio.

And this is not just a trend of the last few months. As I put it in a new special report for True Wealth Opportunities: China subscribers earlier this month...

There hasn't been a better time in recent history to start shifting some money away from the U.S. and into these emerging markets.

The U.S. has almost never been more expensive. And emerging markets have almost never been cheaper...

As you can see, the U.S. market has been more expensive than it is today barely 10% of the time in the past.

The opposite is true for India, where stocks have been more expensive than their current levels almost 90% of the time.

In Indonesia, stocks have been more expensive 95% of the time. And in Thailand and Malaysia, stocks have rarely been cheaper in history.

The last time we had a situation like this was in 2009, just after the subprime mortgage crisis...

Investing today doesn't need to be just a choice between a precarious U.S. market, a politically sensitive Chinese growth market, or consistently falling fixed-income yields.

There's a fourth alternative in emerging Asian markets. And it could be as lucrative as China was for investors diversifying away from the U.S. in the early 2000s.

Ask yourself this... Would you rather buy U.S. stocks at 30 times earnings, or the Next Chinas at half that valuation? I know my answer.

Today, it's easier than it sounds...

When I started in this business 21 years ago, "China" was already becoming the buzzword in the international investment community.

The country had opened up its real estate market, creating the world's biggest property boom in half of a century.

The Chinese went gaga over renewable energy, like solar and wind, unleashing the biggest solar and wind power installation spree in modern day.

China's decades-old infrastructure building boom – giving rise to the world's longest network of highways, expressways, and railways – made the U.S. Interstate Highway System look like a municipal project.

But for the average investor, it was difficult to get in on this growth early on because the companies involved weren't readily accessible in the U.S. market.

That's no longer the case today.

There are already more than 130 Chinese stocks trading via American Depository Receipts (ADRs) in either the New York Stock Exchange or on the Nasdaq. Plus, hundreds of companies trade in the over-the-counter ("OTC") market.

Along with the boom in U.S.-listings of Chinese companies has been a proportional increase in the number of easily tradable emerging-Asian companies.

Moreover, they're not constantly overshadowed and weighed down by threats of delisting, as U.S.-China tensions, including the "trade war," keep rising.

In fact, these very same countries – like India, Vietnam, Thailand, and Indonesia – are perfectly positioned to become new manufacturing bases for companies looking to leave China (and the U.S. tariffs associated with doing business there).

That means investors today have an opportunity to claim an early stake in the Next Chinas of the 21st century. And the beauty of it all is that there is already a roadmap for finding them.

So, please, consider emerging markets in your portfolio today. And if you want to know more, I've identified a handful of emerging-market stocks that will boom as the markets in the "Next Chinas" take off.

This is an unstoppable opportunity... one that could stack up potential quadruple-digit gains in the next three to five years, like the kind I saw from my front-row seat next to China.

Click here to get the details, including three investments you can make today to catch the biggest upside of this emerging growth wave.

New 52-week highs (as of 9/14/20): Almaden Minerals (AAU), Agnico Eagle Mines (AEM), American Homes 4 Rent (AMH), Expeditors International of Washington (EXPD), Fortuna Silver Mines (FSM), Gravity (GRVY), Jushi (JUSHF), McDonald's (MCD), Osisko Gold Royalties (OR), and Sabina Gold & Silver (SGSVF).

In today's mailbag, more feedback on Dan Ferris' heartfelt Friday Digest... Do you have a comment or question? E-mail us at feedback@stansberryresearch.com.

"Thank you for this article. I wrote a 'book' in response, then deleted it. (You are welcome 🙂 ) But I feel compelled to let you know I VERY MUCH appreciate the approach you and the whole Stansberry team takes to investing and life.

"My 'losses that make me sadder and wiser' are no greater than anyone else's but the time you took in helping me reflect opens my mind up to what my eyes see but just doesn't appreciate.

"Striving to be successful in the stock market stirs a 'this is me' feeling I have not gotten in my vocational job. Your writings (the Stansberry team) resonate with me and challenges me. I have read more this year than at any time in my life post college. I will be reading with the thought in mind now, 'just how does this reveal who I am?'

"Thank you. Thank you. Thank you!" – Paid-up subscriber Paul K.

"Thank you, Dan, for reminding me about the Delphi maxims. Makes a lot of sense. I see already some early mistakes I've made in aligning with the Extreme Value portfolio that more careful thoughtfulness would have perhaps avoided. I have work to do clarifying my own personal investment model. Great takeaways! P.S. – On the subject of knowing oneself, have you read The Mind's I by Daniel Dennett? Full of short stories challenging our understanding of "self." While not a daily read, I reread occasionally to remind me certainty is elusive." – Paid-up subscriber Scott R.

"To Dan Ferris, I just wanted to extend to you and your family my condolences on the loss of your mom. May all your sweet memories and treasured times together with her serve to help you through the rough times of missing her. May they also give you many times of joy when you're able to look back over them without so much of the heartbreak and tears and remember them and her with all the happiness, joy and love that those times held originally. I know how hard it is to lose a mom. I'm 62 and lost mine at the age of 27. I just wanted you to know. I'll pray for you." – Paid-up subscriber Karen T.

Good investing,

Brian Tycangco
San Juan City, Philippines
September 15, 2020