 Good day fellow investors. I hope you're doing great today. Today's topic are emerging markets. Now I have been recommending investing in emerging markets for about a year and a half now. The problem is that since then emerging markets are up 53%. That's huge. And as investing, investing risk is a function of the price you pay for something, nothing else. It means that the risk of investing in emerging markets is higher and the returns will be much, much lower now. Then it was the case one and a half years ago when there was blood on the streets, because you have to buy when there is blood on the streets, not when everybody is excited. Let's take a look at what's going on. Let's take a look at what are the risks, how to best invest and what is the market doing wrong and where are the opportunities. This is the MSCI Emerging Market ETF since April 2016. And you can see that the price was around 30, 35 and now it is above 50, which is a huge increase and it outperformed the SAP 500 in the last 12 months. So one of the best performing investments in 2017 and also in 2018. Now what has changed in emerging markets in the last 12 months? There are two perspectives. One is mine, a long-term fundamental perspective and the other perspective is from the market. My perspective is that nothing has changed. Demographics are still positive. Economic growth, long-term economic growth will continue as expected. Cyclical commodities have increased in price, but that's normal as they are cyclicals. So even if companies will show higher, better earnings and governments will show smaller deficits, it is all part of a big cycle. So from a long-term fundamental perspective, nothing has changed. Just the price has increased 50%. The market sees it completely different. They see higher commodity prices, lower risk, higher earnings, lower deficits, higher investments, higher economic growth, but they forget about the cyclicality, the cyclicality of emerging markets, which is extremely fragile, especially as there are some risks that are always there, but it depends if the market is seeing them or not. Just take a look at the 10-year chart of the same emerging market ETF. You can see that in the last 10 years it went absolutely nowhere. There was a big, big drop in 2008, 2009, then a big reversal as commodity prices increased and then it traded sideways for the past six years. So practically it didn't go anywhere in the last 10 years. However, now everybody is excited, huge inflows in emerging markets ETF and very, very positive sentiment. Perhaps it is time to leave emerging markets as they are or be very, very sophisticated when you invest in such markets. We'll discuss that in a minute. The largest holding of the emerging market ETF is Tencent and the stock has been up 776% in the last five years, which is huge. However, its current price-to-earnings ratio is 69. The price-to-book value is 17.26, which are very, very stretched valuations. Nevertheless, Tencent is growing at 50% in revenue per year and earnings of 25% per year. So current earnings of 88 cents, if they continue to grow over the next five years at 25%, which is huge and expects that the current economic situation will continue over the next five years. Five years are a huge period of time in emerging markets. There can be anything. China can slow down higher interest rates, the global slowdown, whatever economic, political shocks, anything can happen. But if Tencent continues to grow in the next five years, then earnings would be $2.69. Still a five-year forward price earnings ratio of just 22, which is then in line with the market. Nobody can see what will happen. However, the price is up 776%, which means that the risk is much, much higher and the return of owning such a stock is much, much lower. I'm not going into details on Tencent now, but just the risk reward is what I am looking at when investing in emerging markets. Further, when you invest in ETFs and what most people are doing, investing in emerging markets through ETFs, you can see that an ETF is weighted by market capitalization. So as there is more money coming in an ETF, they buy more of the companies that have the biggest market capitalization. So if you invest now in ETFs, they will just buy more of Tencent, more of Samsung, more of Alibaba, more of NASPRS, which is again Tencent, same story. So they just push the stocks that are doing well higher. So that's one strategy to invest in emerging markets. Take advantage of the strong trend that's still going on and invest in the top picks, ETF picks and play the game as long as it goes. But be ready to really leave as soon as there are signals for trouble. I don't know for how long the trend will last. Nobody can know that. However, I prefer to invest in emerging markets when they are really extremely cheap because I like to buy them when there's blood on the streets because the economics are there, the demographics are there. They will do well in the long term. However, market sentiment is very, very volatile as you have seen in the 10-year chart. And therefore I prefer really to buy on the bottoms because then I buy at low risk, high reward. Now, if we look again at an emerging market ETF, and in this case, country waste, we can see that China has 40% of the ETF, Korea 14 and Taiwan 11. So those three countries are already at 55%. India, which is a huge country and expected to boom is just 8% because the market capitalization is low. Brazil is 6%. So just a little bit smaller than a huge country like India. South Africa is also big. And South Africa has doubled the market capitalization of the Russian Federation, for example. This means that if you look at those countries, emerging market countries, country per country, you can still find extreme bargains because there are still places where there is blood on the street. A country where there is blood on the street now is Turkey, huge inflation, political issues and so on. So now we have to really understand the country specific situation, the sector specific situation, and the stock specific situation to invest with low risk and high reward in emerging markets. If you just blindly invest in emerging markets now through an ETF, you are just following the herd. And you're doing that after an ETF is already higher 50%, which is very, very risky because the same way it went up 50%, it can go also down 50% in the next year, two years. So it's very risky. Therefore really specific knowledge, stocks, individual stocks that will do well in a short term period to take advantage of the trend. So you have to look at stocks earnings, reversals, and really know the situation. The same what we have done with Xinyuan and CQ in the last stocks to buy videos that did really well because there were short term catalysts to take advantage of the trend and low risk because the businesses were stable and related to China, which is exploding. So keep watching the channel. There will be plenty of companies in emerging markets where the risk is low and returns high, especially from Russia, Brazil, Turkey, you never know where we will find bargains. However, be careful when blindly investing in emerging markets. Further, there are some other sectors that are very, very interesting. The food sector also related to emerging markets where you can find defensive low risk high return investments for better portfolio diversification in this environment with extremely high exuberant stock prices. Thank you for watching. Looking forward to your comments, especially if you disagree with me, we are here to learn together in order to increase our knowledge and our investment returns. I'll see you in the next video.