One of the world’s best-performing stock markets is about to get a big boost …

I’m talking about Indonesia, which returned a compound annual rate of 23.2 percent from 1999 to 2018.

That’s three times better than the S&P 500, which returned 7.2 percent per year (including dividends) over the same period.

Last week, Indonesia – the world’s fourth-most populous nation and 16^th-largest economy – held presidential elections.

Incumbent Joko Widodo (more popularly known as “Jokowi”) won.

And his victory could lead to more big gains in Indonesian stocks. Here are just four reasons why…

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1. Election spending is big in Indonesia

Elections in developing Asian nations typically result in large campaign- and election-related spending that is disproportionately large compared with developed countries.

For example, in India, election spending this year is estimated at US$14 billion, making it the most expensive in the world. That’s equivalent to 0.54 percent of its GDP.

Indonesia is estimated to have spent US$1.8 billion on this year’s elections, a 55 percent increase from the 2014 elections. That’s about 0.18 percent of total GDP.

By contrast, the US$6.5 billion spent during the U.S. elections in 2016 was equivalent to just 0.03 percent of GDP.

Large election-related spending leads to a boost in consumer spending, which results in stronger corporate profits and higher stock prices.

For example, in the 2014 election year, retail sales in Indonesia jumped 14.9 percent, according to the central bank. That was higher than the previous year’s 12.8 percent increase.

That same year, the Indonesian stock market soared 20.2 percent.

This year, in January and February alone, retail sales in Indonesia grew 7.2 percent and 9.1 percent year-on-year. That’s significantly faster than the 3.7 percent increase in all of 2018.

2 Tax cuts are on the way

Jokowi campaigned with a promise to cut corporate tax rates from 25 percent to 17 percent.

A cut of that magnitude could free up US$3 billion to US$6 billion in corporate profits to be reinvested.

But more importantly, it means a significant jump in reported corporate profits from listed companies. That’s always good for the stock market.

The most recent example of this is from the U.S. stock market, which gained 5.6 percent one month after President Donald Trump signed the Tax Cuts and Jobs Act of 2017. That lowered U.S. corporate taxes from 35 percent to 21 percent.

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3. Indonesian stocks historically perform well after elections

As I said earlier, Indonesia has been one of the best-performing markets over the past 20 years, up an average of 23.2 percent per year from 1999 to 2018.

And Indonesian stocks have historically performed well after elections.

During the past four election cycles, Indonesia’s stock market has gained 12.4 percent on average in the three months after the election. After six months, stocks were up 31.4 percent on average… and after 12 months, they were up 37.8 percent on average.

Of course, this is no guarantee that the election will push stocks higher this time around, but history is promising.

4. A powerful long-term growth story

As I’ve just shown, Indonesia’s elections will help boost the country’s market in coming months. But in the bigger picture, Indonesia is also a great place to invest.

Economically, it’s one of the most stable markets in the world.

Since 2001, Indonesia’s economy has grown between 4 to 6 percent – though global financial crisis, political uncertainty and currency fluctuations. Even during the global economic crisis, the country posted GDP growth of 4.7 percent in 2009.

Indonesia also has favourable demographics characterised by a large, young labour force.

Forty-two percent of its population is 24 years or younger. That’s bigger than the entire population of Japan, and it supports growth in its local industries.

Indonesia is also a major producer and exporter of natural resources and agriculture. It exports crude oil, natural gas and coal to China, the U.S. and Singapore. It’s also the world’s largest palm oil producer, the second-largest rubber producer and a top 10 natural gas producer.

So Indonesia generates a substantial amount of revenues from exports of natural resources, giving it a good balance of trade (the difference between imports and exports) with other nations.

And because Indonesia has historically exported more than it’s imported, the country has a high level of foreign currency reserves (US$120 billion) – enough to pay for nearly an entire year worth of imports.

All this makes Indonesia more resistant to external shocks – like another global financial crisis.

In short, with an election boom, tax cuts, growing GDP, favourable demographics and its exports, Indonesia’s stock market (already up 5.3 percent since January) is likely headed higher this year.

One way to get exposure to Indonesia is through the iShares MSCI Indonesia ETF (Exchange: New York; ticker: EIDO). Its top holdings include the country’s largest listed banks, telecom service providers and automotive companies.

Good investing,

Brian Tycangco
Editor, Stansberry Pacific Research

Income matters. But… don’t let it be the tail that wages the dog of your returns.

First… I’ll explain why it matters – and where you can find the highest-yielding markets in the world. But don’t forget the cardinal rule of investing for income.

Don’t diss income

If you’re a speculator who’s aiming for a 300 percent gain on a hot stock tip, then (some investors would argue): Who cares about a measly 3 percent dividend?

If you can consistently – that is, over an investment lifetime – generate enormous capital gains regardless of market conditions… then congratulations, you’re in the top 0.0001 percent of all investors in history. And income wouldn’t matter much.

But if you’re a mere investment mortal like the rest of us, dividends are probably critical to your returns – thanks to the magic of compounding.

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Let’s say you invest a sum of money that generates a steady return. But instead of taking that return and spending it, you reinvest it by buying more of the original investment. The next year both the original investment and the reinvested interest will earn interest, which you again reinvest.

With compounding, your original investment is growing in size due to repeated reinvestment, and every year you are getting a larger and larger sum of interest. It’s like a snowball rolling downhill, growing bigger in size as it picks up more snow on the way. (We wrote about this here.)

Compounding is why investors who opt to re-invest their dividends, rather than pocket the income, will have far better investment returns.

These are the highest-yielding markets

As you can see in the chart below, Pakistan (a 5.7 percent yield), Russia (5.6 percent) and the United Arab Emirates (4.9 percent) are the three highest-yielding markets in the world. The MSCI Asia ex-Japan index offers a yield of 2.5 percent (Singapore is at 4 percent and Hong Kong has a yield of 3.3 percent). The S&P 500 trails with a lousy 1.9 percent yield.

So if you’re looking for high-yielding stocks, start your search in Pakistan, Russia the United Arab Emirates and Asia.

You can look at ETFs like the Global X MSCI Pakistan ETF (NYSE; ticker: PAK), Vaneck Vectors Russia ETF (NYSE; ticker: RSX), and the iShares MSCI UAE ETF (Nasdaq; ticker: UAE).

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Until we saw this.

Asia has the most

If you’re looking for the regions with the most dividend stocks, look to Asia.

As you can see in the chart below, there are 326 stocks from the Asia Pacific ex Japan region (that are part of the MSCI All Country World Index) that yield greater than 3 percent. Europe has just 227… and the U.S. has just 149.

But yield isn’t everything

The ability of a company – or, more broadly, of a market – to sustain its dividends depends on several factors: earnings, free cash flow and debt levels. These factors can change dramatically year over year, quarter over quarter.

And – this is the dangerous part – what happens if a market drops, or the share price of a high-yielding stock drops? It doesn’t take much of a decline to erase the gain you’ll make from making 5 (or so) percent in dividends.

For example… PAK (the Pakistan ETF) is down around 40 percent over the past year. The fund’s 4.5 percent yield barely makes a dent in that. If you’d been drawn to PAK by its dividend, you’re hurting now.

Brian wrote about something similar with China Mobile (Exchange: New York; ticker: CHL)… you can read more about the red herring of dividends here.

Dividends matter, but…

In short, you shouldn’t buy a market or a stock for dividends alone. Compounding is fantastic – but if you’re buying a stock that’s declining in value, the dividend will only dampen the damage.

Good investing,

Kim Iskyan
Publisher, Stansberry Pacific Research

I’ve never seen anything like this…

Vacant land in Bonifacio Global City, the premier central business district of the Philippines, recently sold for a record US$25,000 per square metre (roughly US$2,300 per square foot).

To put that amount in perspective, prime residential real estate land in downtown San Jose, California – at the centre of Silicon Valley – costs US$300 per square foot. And that’s before a gram of foundation has been poured or a single brick has been laid.

Similar property just a stone’s throw away from downtown San Francisco can be bought for just under US$1,000 per square foot.

I remember driving down to Bonifacio Global City, Manila’s premier central business district, on Saturdays when it was still a military camp in 1992. Back then, it was mostly idle land with goats and, on occasion, cows, grazing in the empty fields.

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Today, Bonifacio Global City is more like downtown New York or Central, Hong Kong. Its nearly 600 acres of land has almost all been built on – with skyscrapers, shopping malls and parking lots. The country’s stock exchange moved into its new building there last year. If you’re in the market to buy a Maserati or Lamborghini, this is the place to go.

The highest price paid for a condominium in the Philippines was also in Bonifacio Global City. At about US$1,000 per square foot, it almost matched average prices in Singapore.

As you can see in the chart above, since 2010, home prices in the Philippines have more than doubled.

But I think prices have risen much higher than that. For example, a property I bought a one year ago has already appreciated 25 percent. At that rate, prices will double in just three years.

This rapid rise in land and property values has a lot to do with the relentless growth and development of Metro Manila – one of Asia’s great megacities, which Bonifacio Global City is a part of.

The megacity phenomenon is here to stay

Megacities have populations of 10 million or more inhabitants. (We’ve talked about the rise of Asia’s megacities here and here).

In the U.S., there are only two megacities – the New York metropolitan area and greater Los Angeles.

But in Asia, there were already 21 megacities as of 2017. And that number is expected to rise to 24 by 2030, driven by a massive boom in the middle class.

Meanwhile, today’s Asian megacities are continuing to grow even bigger.

For example, the built-up land in Metro Manila’s urban area covers nearly 1,300 square kilometres. That compares with just 783 square kilometres for the five boroughs of New York City.

Metro Manila’s urban area has more than doubled since 2000 (when it was just 620 square kilometres).

As megacities grow, they attract even more inhabitants. Not just from all over the country, but they also become magnets for foreign investments, including foreign nationals looking for a second home.

Megacities offer the prospect of well-paid jobs, access to modern healthcare, good education, international airports and other urban luxuries (i.e., shopping malls and great restaurants).

In short, megacities are going to continue to grow in Asia.

Not good for everyone

The growth of megacities has contributed to the remarkable growth in real estate values throughout Asia.

But it comes with a cost.

In some cities, regular people can’t afford to live there any more.

Hong Kong is the worst. With a price-to-income ratio of 49 times, it means the average home will cost the average Hong Kong resident 49 years’ worth of income.

Beijing and Shanghai rank as the second and third most unaffordable cities to live in. There, residents need 45 years’ worth of income to purchase a home.

Bangkok, Thailand has become very expensive over the years. Home prices there have risen over 50 percent in the last decade, and it now costs the average resident 22 years’ worth of income to purchase a home.

Manila is still relatively affordable, with the average home costing 20 years’ worth of income.

But rising prices also create new opportunities for real estate outside of megacities. There, people can opt to relocate to take advantage of lower property prices. (But this is only applicable to countries that have large land areas, like China, Indonesia, Thailand and the Philippines. In tiny countries like Hong Kong and Singapore, there just isn’t any more land.)

Pollution will be another major concern, as megacities become home to the highest concentration of cars, trucks, motorcycles and buses. The World Health Organization (WHO) estimates that one-third of global air pollution-related deaths occur in the Asia Pacific region.

But as we’ve seen in cities like Beijing, Guangzhou, Manila and Bangkok, pollution doesn’t stop more people from flocking to these megacities. These are among the most polluted cities in the world, yet their populations continue to swell.

In short, megacities are here to stay. Their impact on Asian real estate values will continue to be felt for years, bolstered by a swelling middle class population and dwindling supplies of available real estate.

That means Asian real estate should be on your radar.

One way to get exposure is through diversified property funds with significant Asian exposure like the iShares International Property ETF (Exchange: New York; ticker: WPS) and the Vanguard Global ex-U.S. Real Estate Index Fund ETF (Exchange: New York; ticker: VNQI).

Both ETFs hold over half of their investable assets in Asian real estate stocks, including many of the largest and most established property developers, real estate investment trusts (REITS) and commercial real estate operators.

Good investing,

Brian Tycangco
Editor, Stansberry Pacific Research

The Japanese yen is falling against the U.S. dollar again… and that’s good news for investors in Japan’s stock market.

That’s because a weaker currency has historically resulted in positive returns in the Nikkei 225 Index – Japan’s main stock market index. Since 2009, the Nikkei 225 Index gained in each of the five years the yen fell against the U.S. dollar.

On average, Japanese stocks gained 24.8 percent during years when the yen fell against the U.S. dollar. In years when the yen gained, stocks fell an average of 0.3 percent.

There’s just one caveat – because these figures are in Japanese yen, they don’t take into account the potential loss investors face in U.S. dollar terms when the yen falls.

For example, an original US$10,000 investment in a yen-denominated stock will only be worth US$9,500 if the yen declines 5 percent against the U.S. dollar (assuming the stock doesn’t move).

But there’s a way to invest in Japanese stocks without having to worry about exchange rate fluctuations. More on that below.

So far this year, the Japanese yen has lost 1 percent against the U.S. dollar. The Japanese stock market, though, has gained 6 percent in yen terms.

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Three situations when Japanese stocks do well as the yen falls

A falling currency is typically bad for business at home. It increases the cost of production by making imported inputs (i.e. raw materials) more expensive in local currency terms.

It also increases the financial burden on nations with significant external (foreign) debt. A weaker currency means more of a country’s local currency is required to service the same amount of interest on, say, its outstanding U.S. dollar debts.

A falling currency also weakens the purchasing power of consumers at home, as businesses increase the prices of goods sold domestically to account for higher raw material costs.

This all sounds like a poor environment for investors in the stock market.

But there are three key reasons why Japan’s stock market often rises when the yen drops.

First is Japan’s massive foreign investments. The Japanese are known to be among the world’s biggest investors internationally – from investments in new Toyota and Nissan automobile manufacturing plants in Europe to major infrastructure projects, such as high-speed railways in Asia.

As of the start of 2018, total outstanding Japanese overseas investment stood at US$1.54 trillion. That was almost double the amount at the end of 2012.

Since records began, Japan has made US$480 billion worth of accumulated direct investments in the U.S. alone as of 2018 – the third-largest next to the U.K. and Canada.

These investments overseas are reported back home in Japan in local currency terms, and they get an added boost when the yen falls – buoying corporate profits.

Second is Japan’s big export industry. It’s among the world’s leading suppliers of electronics, high-precision equipment, robots, automobiles and heavy equipment.

Japan is the second-largest exporter to the U.S. (It also runs a large trade surplus with the U.S., making it a potential target in U.S. President Donald Trump’s trade war.)

A weaker currency tends to help Japanese exports, because it makes Japanese products cheaper for other countries (like the U.S.) to buy.

For instance, Toyota Motors (Exchange: New York; ticker: TM), Japan’s largest car exporter and largest producer overseas, sees operating profits rise US$250 million for every one yen fall in the U.S. dollar’s value (i.e. from 110 yen to 111 yen per U.S. dollar).

Japan’s other big exporters like Sony, Fast Retailing, Toshiba and Mitsubishi also see profits rise as the yen falls.

This is why a weaker yen typically results in better Japanese stock market performance.

Lastly, tourism gets a big boost from a weaker currency.

Japan is expensive. Food, hotels and transportation cost a lot – particularly for tourists.

When the Japanese yen hit a 20-year high in late 2011, tourism revenue fell by 18 percent because (for visitors thinking in foreign currency) Japan was even more expensive than usual.

Since then, the yen has lost nearly 40 percent against the U.S. dollar. It’s fallen by an almost equal amount against the Chinese renminbi and the Singapore dollar.

As a result, tourism in Japan has boomed. From just 6.2 million tourists visiting Japan in 2011, the figure hit 31.1 million last year – a nearly fivefold increase.

Tourism revenues hit a record US$41.5 billion in 2018, which was a 232 percent increase over seven years.

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Why the yen could keep falling

There are many reasons for the yen’s decline over the last seven years. One of the biggest is interest rates.

Since the Bank of Japan (BoJ) embarked on its quantitative easing (QE) programme in April 2013, interest rates have stayed flat for a long time. (QE is the process of a government buying its own debt to drive interest rates lower.)

As you can see in the chart above, the benchmark 10-Year Japanese government bond (JGB) is now yielding negative 0.086 percent.

That means an investor putting US$1 million into a 10-Year JGB will get only US$999,140 back after one year – that’s a guaranteed loss of US$860. So investors are looking elsewhere.

Putting the same US$1 million in a 10-Year U.S. Treasury (with today’s 2.45 percent yield) will return US$24,500 after a year (before taxes and inflation).

As long as interest rates are negative in Japan, we can expect the yen to continue its downward trend.

That means investors should start paying attention to Japanese stocks. But as I mentioned earlier, a falling Japanese currency could eat up gains for investors in Japanese stocks when converting to U.S. dollars (or any other currency that gains against the yen).

One way to go long Japanese equities without the risk of currency fluctuations is an exchange-traded fund called the MSCI Japan Hedged Equity ETF (Exchange: New York; ticker: DBJP).

The DBJP tracks the holdings of the MSCI Japan Index, but hedges out the currency exposure that would otherwise be inherent in investing in Japanese-listed stocks.

Good investing,

Brian Tycangco
Editor, Stansberry Pacific Research

Last month, my wife and I were shocked to be turned away from one of Singapore’s finest medical establishments. The reason? Lack of beds.

“Come back tomorrow,” her obstetrician’s assistant suggested. “There might be an opening if you come early.”

Whether it’s for-profit hospitals, health insurance providers or pharmaceutical manufacturers, business is good almost everywhere you go in Asia.

In 2016, the Asian healthcare industry generated US$1.8 trillion in revenue, and that’s expected to reach US$2.7 trillion in 2020. The industry is growing nearly 10 percent a year.

That’s more than double the expected 4.3 percent growth rate of the global healthcare industry during the same period.

By 2020, Asia will account for 31 percent of the global healthcare market, compared to 23 percent three years ago.

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Why healthcare is growing so fast in Asia

I was in hospitals a lot when I was a kid. Not because I was sick, but because my parents were doctors, and helped launch one of the first full-service hospitals in the Philippines’ capital of Manila.

Hospitals were boring to me then. The dimly-lit hallways were spooky. Going upstairs took forever because the hospital had only three elevators (just two of which were working at any given time).

It was one of the few hospitals in the country back then with an X-ray machine and ultrasound. And most of the well-known surgeons in the country had an office there.

Back then, around 6 million people lived in Metro Manila. The country’s annual GDP, at US$33 billion, was as much as Sudan’s economy today.

But it’s an entirely different picture today. Close to 20 million people live in Metro Manila. The nation’s GDP is 10 times bigger.

There are now five world-class hospitals within 30 minutes from where I live – each with a full range of basic and advance services, complete with modern MRIs, CT scans, 3D-imaging and linear accelerators (for radiation therapy). Any one of them can give western hospitals Cedars-Sinai Medical Center and UCLA Medical Center a run for their money.

As the people living in the Philippines grew wealthier, they wanted better healthcare – and they can now afford it. But it’s not just the Philippines. This is happening throughout Asia.

Asia healthcare spending is growing five times faster than the U.S.

The U.S. is the world’s biggest healthcare market. The rising cost of healthcare has been a major problem plaguing the country.

A household of four living in San Francisco, for instance, spends about US$18,000 a year on health insurance premiums alone. That’s a big slice of disposable income.

U.S. spending on healthcare is already taking such a big slice out of people’s wallets that there’s little room for growth. Today, U.S. per capita healthcare spending is 17.1 percent compared with 10 percent globally.

From 2004 to 2014, per capita spending on healthcare in the U.S. grew 48 percent. That was below the global per capita growth of 60 percent.

Meanwhile, Asia’s rising economies have seen per capita healthcare spending grow up to five times faster than that of the U.S.

As the graph above shows, Asian countries saw per capita healthcare spending surge 277 percent over the 10-year period from 2004 to 2014.

Of these countries, the fastest growth was seen in China (492 percent), the Philippines (286 percent), Indonesia (267 percent), Vietnam (373 percent) and Myanmar (300 percent).

Except for China, these countries have a young demographic that supports a growing economy and increasing demand for healthcare.

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More room for growth

Healthcare expenditures amount to 4.7 percent of GDP in Asia. That’s just under half the global average of 10 percent. So Asia’s healthcare industry has a long way to grow.

But Asia is already home to some of the world’s best hospitals that offer world class service at a fraction of what it would normally cost in the U.S., Europe and Japan.

For example, annual physicals in the Philippines or Bangkok cost just US$300 instead of US$1,000 or more in places like the U.S. A heart bypass procedure with a two-week stay in the hospital and doctor’s fees cost US$15,000 instead of US$40,000 to US$70,000 in the U.S. And other common medical procedures are up to 90 percent cheaper than places like the U.S., based on data from MedicalTourism.com.

Some of Asia’s best hospitals include Bumrungrad and Bangkok Dusit Medical in Thailand, St. Luke’s Medical Center and Makati Medical Center in the Philippines, and the Prince Court Medical Center in Malaysia.

And there are dozens more hospitals under construction and in the planning stage. Singapore’s Raffles Medical Center is opening two new world-class hospitals in China. Bangkok Dusit Medical has plans for five new hospitals in Thailand in the next two years.

Asian hospitals’ world-class care and cheaper prices have spawned a multi-billion-dollar medical tourism industry – the practice of individuals traveling outside their home country to find better or more affordable healthcare.

With six of the world’s top 10 medical tourism destinations, Asia Pacific will be the fastest-growing region for medical tourism in 2018, with growth rates exceeding 15 percent.

If you want to profit from Asia’s massive healthcare spending in the years ahead, one way to invest is through the KraneShares MSCI All China Health Care Index ETF (Exchange: New York; ticker: KURE).

It gives shareholders exposure to Chinese companies listed in China, Hong Kong and the United States that are involved in the healthcare industry, including hospital administration, medical equipment production, healthcare technology, as well as traditional Chinese medicine.

Good investing,

Brian Tycangco
Editor, Stansberry Pacific Research

When I visited Venezuela a bit more than four years ago, I thought it was a nation on the brink of change.

The politicians were worthless, crime and murder was rampant and inflation was sky-high. There was also no investment in anything, the economy was broken, nothing worked and popular discontent was visible. Meanwhile, buying a tank of gas cost no more than a few cents.

I was wrong. It turned out, the Venezuela of four years ago was Club Med compared to Venezuela today.

But that might change soon… and there’s one thing I’m looking out for as a trigger that could change everything.

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Venezuela should be rich

In 1970, Venezuela was the richest country in Latin America. The country’s wealth came from its large oil reserves – which are twice as large as Iraq’s and almost seven times as much as those in the U.S. Venezuela also has lots of natural gas, iron ore, bauxite and gold.

But then things went horribly wrong…

Part of Venezuela’s decline stemmed from a government decision in 1976 to nationalise the country’s oil industry. Productivity and efficiency fell sharply. Foreign investors learned that Venezuela was a black hole for capital – and stayed away.

In the early 1980s, Venezuela’s politicians – concerned that the country might run out of its greatest resource – decided to limit oil production growth. Around the same time, a global oil glut pushed down oil prices.

The combination of lower oil production and lower oil prices hammered the country’s economy. From 1980 to 1990, Venezuela’s GDP per capita collapsed by 46 percent.

Things got worse in the 1990s. Although oil production picked up again, low oil prices meant that the economy deteriorated further.

Enter Mr. Chavez

In 1998, a charismatic strongman named Hugo Chavez was elected president. Chavez appealed to Venezuela’s poor by promising to rescue them from poverty and to restore the country’s pride.

Chavez had the good fortune – for himself, not for Venezuela – to take office in early 1999, within days of the price of oil hitting a bottom of US$10 per barrel. The 1999-2008 commodities boom helped send oil to US$140 per barrel… and gave Chavez’s socialist government the cash it needed to create one of the world’s most subsidised economies.

Subsidies are a powerful tool for politicians. Few people, especially in poor countries, will vote out someone who gives them free stuff. Subsidies are also economic poison.

Chavez died of cancer in March 2013. His handpicked successor, Nicolas Maduro, carried on his policies.

Subsidies create incredible economic inefficiencies and distortions. When I was there, I saw hundreds of people waiting outside state-run supermarkets that hadn’t opened for the day yet. There wasn’t much food – because nothing (distribution, business, government, the economy, the country) worked. And it’s gotten far, far worse.

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Maduro’s madness

Today, an incredible 90 percent of the population of Venezuela is now under the poverty line – twice what it was four years ago. So many children are malnourished and adults are going hungry that Venezuelans have coined a term for it… they call it “The Maduro Diet”.

The country’s biggest export is its people… an estimated 3 million Venezuelans have left the country (equivalent to 10 percent of the population) since 2015.

Annualised inflation in Venezuela is now running around 1 million percent. In most of the rest of the world, inflation of 15 percent (in the U.S. in the late 1970s, for example) is considered nosebleed catastrophic. The International Monetary Fund predicts that inflation could reach an impossible-to-understand 10 million percent this year and estimates that the economy will shrink by at least 18 percent.

What will doom Maduro

Through it all, Maduro has held on to power. In May, he won a new six-year term as president, in an election widely seen as a sham.

But after his inauguration in January, opposition leader and head of Congress Juan Guaidó declared himself as the interim president of Venezuela. Guaidó is recognised as the legitimate leader of the country by more than 60 countries – including the U.S.

Maduro refuses to step down. The U.S. has hit Venezuela with sanctions, and darkly hinted at military intervention. Meanwhile, Maduro has been blocking humanitarian aid from coming into Venezuela, saying that it’s veiled attempts at foreign invasion.

This story is far from over.

Investors should be wary, until…

Back in March 2017 I wrote, “even if Venezuela’s pressing political and macroeconomic problems were somehow solved tomorrow, the country still faces more structural challenges than most countries will experience over the course of a few generations.”

But despite the signs, many investors poured into the country’s sovereign bonds. As I told you in June 2017, some investors – most notably, global bank Goldman Sachs – were betting that the Venezuela government would pay bondholders back instead of importing food and medicine for its people.

So far, that’s been wrong. (Whoever bought then, and didn’t follow a reasonable stop loss is sitting on big losses.)

But in recent months, bondholders have been heartened by the potential for change. As of early February, the Bloomberg Barclays Venezuela Sovereign Bond Index, which measures the prices of Venezuela’s sovereign bonds, was up nearly 50 percent over the end of last year. It’s since fallen sharply from those levels, as shown below. And bond prices are well below the heady days of early 2017.

What will make things better?

As any contrarian will tell you the best time to get into a market is when things seem like they can’t get any worse. If things can’t get any worse, they can only get better. Unfortunately for Venezuela, things have – incredibly – only gotten worse.

What will change things? One thing: The support of Venezuela’s military. The moment that the military feels that it will be better served – looked after, cultivated, fed and supplied – with someone other than the current president, Maduro is out.

Will that be time to invest in Venezuela? If you know people and don’t mind a lawless society where the rule of law doesn’t exist, yes. For everyone else, not yet.

Good investing,

Kim

P.S. I travel to out-of-favour markets all over the world to figure out if they’re out of favour for good reason… or if they’re undervalued gems. Venezuela isn’t someplace I’d want to invest anytime soon. However, there’s a handful of countries that most people might think are similar to Venezuela… but they’re actually attractive investment destinations. In International Capitalist, I set out to find those countries and markets. And in the next few days, we’ll be opening up International Capitalist to new subscribers. So stay tuned.