Wish You Could Turn Back the Clock and Invest in the S&P in 1988?
We Just Found a Similar Opportunity!

      It was late November of 1988 and the S&P 500 was trading around 275. Investors were still reeling from the sharp correction in stocks on "Black Monday" about a year earlier. Perhaps that lingering fear and panic was the reason why U.S. stocks were trading at such depressed valuation levels.

      You see, back in November of 1988 was the last time the S&P 500 traded with a trailing price-to-earnings (P/E) ratio of around 12. To be exact, the P/E ratio for the S&P dipped as low as 11.5 during the course of that month.

      At the time, many investors were worried. On the geopolitical front, the Soviet Union remained a very real threat, and the Iron Curtain still stretched across much of Europe. Closer to home, inflation had begun to creep higher in the late 1980s, and there were signs of overheating in the real estate market. Newly appointed Fed chairman Alan Greenspan had also hiked rates ahead of the 1987 crash -- Fed policy was just as big of a concern back then as it is today.

      But, as is so often the case, those with the courage to accept these risks and buy stocks were amply rewarded in the coming years. During the nearly 20-year period from the S&P's low in November 1988 until the end of 2007, the index returned nearly +500%. In real terms, a $50,000 investment in 1988 would now be worth about $300,000.

      When you look back, it's easy to see that 1988 represented an historic buying opportunity for U.S. stocks. And although you certainly can't buy the S&P at 12 or 13 times earnings today, there are still ways to buy stocks at less than 13 times earnings. You just need to look overseas.

      You see, investors currently have another historic buying opportunity -- an opportunity very similar to what we saw in the S&P back in 1988. But this great opportunity does not lie in U.S. stocks. Instead, it exists in a little-publicized foreign market with enormous long-term potential.

      Not only are stocks in this foreign nation cheap, but its economy is also on solid footing, with gross domestic product (GDP) surging at an annualized rate of +5.0% in 2006, +4.8% in 2007, and a projected +4.6% in 2008. In fact, this economy has been growing at a consistent clip of at least +4.0% in each of the past three years, and that growth shows no sign of slowing in the coming years.

      This economy's health has historically been tied to exports rather than domestic demand and expenditures. But the consumer is awakening -- consumer expenditures have climbed a healthy +5.75% in recent quarters, and household income is expanding at a roughly +4.75% clip.

      In the early part of this decade, a bubble in credit card and other personal debts hit local banks hard as consumers became overstretched and started defaulting on loans. Now, however, these institutions have resolved the bulk of their bad debt issues and have become far more conservative about lending -- the financial system is healthier and better capitalized than it has been in years. Mortgage lending is growing again at a sustainable pace, and the housing and credit markets are healthy.

       Introducing:  South Korea
      Of course, I'm not talking about the U.S. here. Rather, this historic buying opportunity is to be found in South Korea. The country's main stock market index, the KOSPI, trades at around 12.7 times trailing earnings and just 11.7 times forward earnings as we go to press, making it about as cheap as the S&P 500 in 1988.

      Meanwhile, the economy and consumer spending are growing at a much faster pace than in the U.S. Even better, Korea is located in the center of the world's most dynamic growth markets -- in the very heart of Asia.

This small peninsular country has become a global leader in a variety of electronics and industrial markets. South Korean cars, once considered low quality and unreliable, are making headway in the U.S. and other developed markets. If you don't believe me, just check out the number of Hyundais you see in the sububs of any major American city.

      This export growth has continued despite an economic slowdown in the U.S., which has historically been a major destination for Korean exports. That's because Korea's export base has grown more diversified in recent years -- fast-growing Asian nations, as well as Europe, are important destinations for Korean goods.

      South Korea's Compelling Valuation
      So, why is this market so cheap in the midst of all the favorable economic news? There's no single right answer to this question.

      South Korea is still considered an emerging market by many investors, though it's certainly outgrowing that moniker. The country's economy has grown rapidly since the 1960s and GDP per capita -- a basic measure of overall wealth -- stands at just under $25,000. While that's far less than the $43,500 per capita GDP enjoyed in the U.S., it's not far below the GDP per capita of Spain, and it is well ahead of Portugal. 

      South Korea certainly isn't the obscure economic backwater it once was. With a stable government and legal system, investors are beginning to re-evaluate the country's risk from an investing standpoint -- over time, market valuation levels are likely to rise to reflect the lower perceived risk.

      Another factor that's been holding South Korean stocks back is the perceived geopolitical risk associated with North Korea. That communist State is an utter economic disaster -- GDP per capita is less than 8% of the country's southern neighbor. And to top it all off, North Korea has been attempting to develop nuclear weapons and missile technology that could threaten South Korea or nearby Japan.

      However, South Korea has flourished for years despite the risks associated with North Korea. And the chance of an all-out war between South and North Korea is remote given the huge U.S. troop presence in South Korea and China's military dominance to the north.

      Investors are already beginning to catch on to the positive economic story and reduced risks of investing in South Korea. That fact is reflected in the stellar performance of the nation's stock market in recent years. As my chart above shows, the KOSPI Composite Index has skyrocketed nearly +200% higher over the past five years -- beating the S&P 500 by a nearly 4-to-1 margin. And with reasonable valuation levels and strong growth potential, I believe South Korean stocks have years of additional outperformance ahead of them.

      Capture Above-Average Dividends in This Booming Market
      In the end, a rising stock market is usually a reflection of a country's rising wealth -- and rising corporate profits. Of course, the question always arises of what to do with this influx of cash. More and more, Korean firms are deciding to pay out their profits to investors in the form of rich, above-average dividends.

      Nowhere is this trend more evident than in the funds that invest in this Asian Tiger. For example, I recently uncovered a fund whose sole focus is South Korea. Its holdings run the gamut from steel maker POSCO to electronics firm Samsung to shipbuilders Hyundai Heavy and Daewoo. Their common theme -- all of these stocks trade only in South Korea, and all of them are growing at phenomenal rates. As a result, they're delivering strong returns for investors. The returns posted by these companies have been so exceptional, in fact, that this fund has already gained more than +204% over the past five years.

      Even better yet, this fund has showered investors with rising distributions -- $7.12 per share in 2006 and $15.94 per share in 2007. Try finding payments like that from companies in the United States!

      If you'd like to learn the name of this fund -- plus receive a steady stream of foreign stocks, funds and other investing ideas with abnormally high dividend yields each and every month -- then I'd like to extend you a personal invitation to try my premium newsletter . . . High-Yield International. Visit this link to learn more.

      Thanks for joining me on my search for today's highest-yielding securities!

-- Nick Lanyi
Editor, High-Yield International