Let's face facts: Investors are scared witless right now. That's why nearly $5 billion flowed out of stock mutual funds in June. What's more, we've seen weakness in once-venerable names such as Vodafone
Given recent volatility and widespread weakness in the economy, these trends will only continue.
The panic is perhaps most pronounced in the emerging-markets sector. According to a recent Emerging Portfolio Fund Research (EPFR) report featured in The Wall Street Journal, investors had "pulled a net $14.3 billion out of emerging-market stock funds" earlier this year. More recent data from the Investment Company Institute revealed that $1.2 billion had been pulled from mutual funds that invest abroad in June.
That's a lot of money moving around, and it's worth asking one question: Is now really the right time to withdraw your investment dollars from emerging global economies?
The experts agree
When I put this question to some money managers recently, their answers were nothing short of unanimous: No way; no how; not by a long shot.
Jeff Feinberg, founder of JLF Asset Management, told a crowded room at a Roth Capital conference recently that now is a fantastic time to be looking at Indian stocks. That country's market is down 25% since the beginning of the year, even as the fundamentals that have made it such a fantastic market over the past five years -- the world's second-fastest growing economy; a young, hungry, and growing workforce; and a clear commitment to democracy and freedom -- remain firmly in place.
"It's a long flight to India," Feinberg said. "In order to go over there, I need 50% growth at a single-digit P/E ... and I was just there for two weeks." That's when Roth founder Byron Roth chimed in. "I've already got my trip planned," he said.
It doesn't stop there
Feinberg and Roth aren't the only pros still excited by emerging markets. The Fool's Bill Mann explained recently why you must own international stocks. And that EPFR report noted that while individual investors were pulling money from the market, global stock funds had increased their average emerging-markets exposure from 5.8% to 9% ... a very bullish bet. The Journal also reported recently on private equity funds that are putting money to work in Africa. Those markets have been crushed recently, but they remain resource-rich.
In other words, when the individual investor is scared, the professional steps in to take advantage. That should tell us something.
And you thought it was time to pull out!
The best investors consider widespread market sentiment a contrary indicator. In other words, if the rabble (apologies to Nietzsche) is selling emerging-market stocks, you're likely to make money by buying those discarded shares.
That general premise also holds true across sectors and styles, explaining why some of the top master investor buys of the last month, as reported by GuruFocus, were eBay
And finally, the Oracle
Warren Buffett said as much when he described his investment strategy as being greedy when others are fearful and fearful when others are greedy. Right now, others are clearly fearful. The question is: What are you?
Bill Mann and I recently returned from another trip to China, where we met company officials and did research for our Motley Fool Global Gains international investing service. You can get our top three stock ideas from the trip, as well as read about all of our Global Gains recommendations, by joining free for 30 days.
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This article was first published March 18, 2008. It has been updated.
Tim Hanson does not own shares of any company mentioned. eBay is a Motley Fool Stock Advisor recommendation. Legg Mason is an Inside Value pick, and The Motley Fool owns shares of Legg Mason. The Fool's disclosure policy flies coach.