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Emerging Markets for Scaredycats: Prepare for Plan E

Updated: Sep 29, 2021

Emerging markets aren't for the faint of heart. But a 40% discount to the S&P 500 makes them attractive right now. Here's one way to help the EM medicine go down.

Since the late great Mark Haines of CNBC called the market bottom - now the famous "Haines Bottom" of March 10, 2009, the S&P 500 is up about 16.2% on an annualized basis over the last 12.5 years. His now famous quote:

"I'm going to step out on a limb here....I think we're at a bottom. I really do."

Mark Haines, March 10, 2009

Fortunes have been built and retirement accounts swollen thanks to large cap domestic and tech stocks in these last dozen years. Nobody knows if it will continue, but the market watchers our there know that at some point the music will run out on what has worked best in that time, and it may be time for a plan B, or in this case a plan E - Emerging Markets.

With a forward P/E ratio of 21.8, the S&P 500 is pricey by historical standards. That's why perhaps now is as good a time as any to revisit the long unloved and underperforming emerging markets asset class again. A forward P/E of 12.8 on the MSCI Emerging Markets index means they are a smashing bargain compared to the S&P 500, and for those who still need the growth potential that only equities can provide, emerging markets exposure may be a timely portfolio tweak. (P/E data exclusive of narrative courtesy of Yardeni Research, Inc., Global Index Briefing: MSCI Forward P/E's)

Of course, EM's have heightened risks compared to the S&P 500 or other developed markets, the most prominent among them currency risk and political risk. From Bolsonaro and Brazil to Xi and China, these risks are front page fodder right now. Common prosperity, anyone?

That's why I think today's latest registered linked indexed annuities can be an outstanding vessel within which to deliver one's emerging markets exposure, given their uniquely protective characteristics providing volatility dampening.


  • Some products with crediting periods longer than a year provide upside potential with either no cap or a very high cap. Compared to the total return index, you are giving up the roughly 1.5% annual dividend. That seems a fair price to pay for the downside cushion.


  • A typical 10% buffer means a loss in the index creates a shallower hole out of which to climb.

  • A 30% loss requires a 43% gain to climb out of back to the starting point; a 20% loss requires only 25% to get back to even. So winning can also happen by not losing - as much.

  • More importantly, the buffer or other loss mitigation feature may provide that extra bit of confidence to get the client comfortable with emerging markets in the first place.

Emerging markets may be a timely investing idea, but they can be scary. Annuities can make them less so.

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