 Good day fellow investors. My name is Sven Kallin and I run the Invest with Sven Kallin channel on YouTube and today we'll be discussing what are emerging markets, why to invest in emerging markets, how to invest in emerging markets and when to invest in emerging markets. So let's immediately start with what are emerging markets and then we'll see why it's important now, especially in this moment in time, to look at emerging markets as an investment opportunity. So what are emerging markets? Emerging markets are countries that are not developed as the US is, as Europe is, but are on a good trajectory to come there. As you can see here 52% of the population lives in emerging markets in countries like Mexico, Brazil, Russia, China, India, but only 49% of the global GDP comes from those markets. As those countries develop their GDP share will be bigger and bigger and therefore it is extremely important to be invested in emerging markets. Now okay when I say China, India, Russia, Brazil, that's not familiar to most investors, especially those in the developed markets. That's because they have a domestic bias. So you're human, you like your comfort zone and everything out of that comfort zone is considered risky, dangerous, volatile and better not to do. And that could be a very, very costly opinion when it comes to investing in emerging markets. Jack Boggle, the founder of the Vanguard Group, the Vanguard Index Funds recently discussed his expectations on what we can expect from the SAP 500. And he said that in the best case scenario we can expect returns of 4% over the next decade. So that's 4% from US stocks because valuations price-to-earnings ratios are extremely high and will lead historically, logically, rationally to 4% over the next 10 years. If there is a recession that can also be minus 50%. So the risks are high, but the returns are only 4%. Now if you are not happy with 4%, you have to look elsewhere for better returns because the difference is huge. Investing $10,000 at 4% over 20 years will end up at $22,000. $10,000 at 10% over 20 years will end up at $67,000. So the difference is huge. Emerging markets, I believe, will deliver more than 10% for the intelligent investor. And here is one reason why that will happen. The population in emerging markets will continue to grow over the next 40 years and has been growing extremely fastly in the last 50-60 years. This means that the population is still young. Those countries still need a lot of infrastructure, a lot of building, a lot of growth. And in comparison, developed countries you can see here below the gray line, the orange line, the blue line are all growing at a very, very slow rate. More people mean more customers, more consumptions, more business, more travel, more infrastructure, etc. On top of everything, emerging markets are growing at a very, very fast rate. China is growing almost at 7%. India has recently slowed down due to demonetization, but is still growing at 5-6%. And you can see in this figure that emerging markets, China, India, have been in the past 200 years ago, the largest contributors to global GDP. Then they have lost their leading position due to colonization wars, but now they are returning to their leading position. And you can see how here in the upper right corner, China is hugely increasing its share in global GDP, followed by India. You want to be invested in that trend, and you can see how Western Europe is declining, so you don't want to be invested there, and the US is stable. What is even more important, that the percentage of the population living in extremely poor condition has been declining at incredible rates. In 1981, more than 90% of Chinese were extremely poor. The level now is at 10%. India was above 50%, the level now is below 20%. This means that as there is less and less poor people, all those people will need home, shelter, more things that they will consume, education, services, infrastructure, everything that goes along with the developed, not poor lifestyle, medications. So we can expect those 4.5 billion people going into 5.5 billion to have a huge impact on global demand for goods and on the businesses that operate in that environment. Another example is the global middle class consumption expectation. And now you can see how Asia is not yet leading, but in the future will be definitely leading and taking over the complete demand for goods and services in the world. So this clearly tells us one thing. The 20th century was the century of the US and consequently Europe. The 21st century is the Asian century. Make sure that your money doesn't get stuck in the past century and that clearly follows the trend in the current century. It will make a huge difference over your lifetime. How to invest in emerging markets? Now you don't have to take your money, pack it in a bag and bring it to India or China. You can do it comfortably sitting from your home and buying stocks on the New York Stock Exchange. If you type into Google, NASDAQ, company list, you will get to this webpage where you have all the companies that are traded on the New York Stock Exchange and on the NASDAQ Stock Exchange that have operations or that are headquartered in Asia, Africa, Australia, wherever you want. You have them listed by region and also you have them listed by industry. So this is an excellent webpage to look at companies all over the world or in specific industry sectors that you are looking for. Here you can find great investments so that you don't have to go to China to invest in China. For example, the stock here mentioned is Alibaba Group. Now another option is to invest through ETFs. I believe emerging market ETFs will do better than SAP 500 ETFs. But there is always the problem with ETFs that ETFs buy high and sell low when there is a crisis because ETFs buy the companies with the largest market capitalizations, thus the most expensive companies. And that's something the intelligent investor doesn't do. So if you want better returns, ETFs are okay. If you want even better returns, look at specific companies because the world is so big and you can find cheap bargains at extremely low prices. Just an example why emerging market companies are cheaper, I will compare Amazon and Alibaba. The price earnings ratio for Alibaba is four times lower than Amazon. The price to books ratio is two times lower and the price to cash flow is similar. As the growth rates at both companies are pretty similar, you can see how Alibaba is cheaper because it operates in China and not in the US. Extremely important fact and similarly also on the aggregate field the situation is the same. Here you have a global chart of valuations, price to earnings ratio. So the lower the price to earnings ratio, the more you get for your investment. The price to earnings ratio in China is 7.6, which leads to an earnings return of about 14%. However, the price earnings ratio in the US is 22.4, which leads to earning returns of 4.5%. The difference over the next 20 years will be huge. Another example, now we know that the electric vehicle industry is exploding, Tesla stock has had some problems, but they still expect to produce a lot of new cars. And apart from lithium, cobalt, another metal that all those new cars need is nickel. And there is a company in Russia, it's called Norilsk Nickel, which is the biggest miner of nickel in the world. And if you look at the valuations, the price to earnings ratio is again below the SAP 500. The dividend is three times higher than the SAP 500. So those valuations are cheap when compared to what the SAP 500 offers and when compared to the potential that the company in an emerging market where demand is growing from China, from India, and in a sector that will explode in the next 10 years. So that is first much cheaper than the SAP 500. And secondly, for the growth, for the potential the company offers, it's extremely cheap. So if you invest now in such a company and forget about your money in 10 years and reinvest the dividend, your returns will be huge. However, if you don't feel like investing in some obscure company in China, India, Russia, you can also invest in domestic strong brands that have exposure to emerging markets. Another domestic stock that you can look at is Starbucks. They plan to expand their store count in China to 5,000 stores by 2021. Chinese economics are growing at 7%. So there will be more and more customers for Starbucks. They are increasing the infrastructure. So huge growth expected from Starbucks to come there. So if you look at companies that can take advantage of what's going on in China and in India, especially in India, you can buy good household brands now that will do very good in emerging markets. However, they are a bit more pricey than buying directly companies in emerging markets. Third point for today is when to invest in emerging markets. Just because something is in an emerging market doesn't mean it will be a good investment. As always, you have to look at valuations, earnings, potential growth, and the quality of the business. Here we have a comparison of the returns between the emerging markets index and the SAP 500 index. From 2001 to 2010, the emerging markets in the darker blue has returned 16% per year. The SAP 500 has returned 1.4%. From 2011 to 2016, the SAP 500 has returned 12.5% per year, emerging markets and negative 2.3%. Full 16 years emerging markets have beaten the SAP 500. However, in 2011, the price earnings ratio of the SAP 500 was around 15, which was cheap for the SAP 500. So then it was better to invest in the SAP 500. Now again, the price earnings ratio is high like it was in 2001 and emerging market price to earnings ratio is much lower. Here we can see emerging market index is 16.6 the price earnings ratio, while the SAP 500 is 22.4. Price to book ratio 3.26 for the SAP 500, 1.82 for emerging markets, which means that the book value of the stocks is double than what is on the SAP 500. Over the long term, that is what creates stock returns. So for the when to invest in emerging markets, you have to invest in emerging markets when the SAP 500 is expensive and emerging markets are relatively cheap. This is now. If in two years the SAP 500 becomes cheap again, then again, you switch from emerging markets to the SAP 500. So I hope I have interested you in emerging markets. On my channel, we constantly discuss stocks from emerging markets, Chinese stocks, Indian stocks, and everything that can increase future returns with lowering your risk. I hope you subscribe to the channel and click like if you like the content. Thank you and I hope to see you in the next video.