Some emerging markets are outperforming the U.S. economy.
While the International Monetary Fund recently upgraded its growth forecast for the U.S. economy to 6%, investors are looking for opportunities in emerging-market economies such as China, South Korea and India. These markets are set for impressive performance in 2021. The IMF also set new growth projections for China’s gross domestic product to expand 8.4% in 2021, expecting India to grow 12.5% and South Korea to grow 3.6% this year. Here are seven emerging-market stocks to buy now and hold for the long term.
Taiwan Semiconductor Manufacturing (ticker: TSM)
Taiwan Semiconductor manufactures and sells integrated circuits and semiconductors. These small chips are the fundamental building blocks of electronic devices in technologies used frequently today, including computers, smartphones, electronic vehicles, medical equipment and other devices. While some of TSM’s prominent competitors, such as Intel Corp. (INTC) and Advanced Micro Devices (AMD), are also well-known chip producers, TSM is a strong industry player. Taiwan has become the world’s leading location for semiconductor foundry manufacturing, dominated by two manufacturers, with TSM being one of them. The company is well-positioned to “win big” from its innovative technology developments in various sectors, says Ivan Platonov, research manager at EqualOcean, a China-focused investment research firm. “The company’s recent $100 billion (capital expenditure) plan will allow it to remain unchallenged at low process nodes while boosting the production scale to meet the chip-shortage-spurred demand,” he says. This investment may help TSM expand its chip production and ultimately ensure the company’s status as the leader in the semiconductor production technology.
Year-over-year return: 146%
JD.com, a direct-to-consumer e-commerce company based in Beijing, is one of China’s largest online retailers. The company’s two main business segments are online retail and marketing services. But JD.com has been expanding into new segments, including logistics services, overseas business and technology initiatives. The company has strategic partnerships with tech giants such as HP Inc. (HPQ) , Microsoft Corp. (MSFT), Apple (AAPL) and other leading global brands. Its third-party platform allows merchants to offer consumers a variety of products such as home appliances, electric devices, office supplies and furniture. That ability makes it similar to competing online retail giants, including Amazon.com (AMZN) and Alibaba (BABA). JD.com has proven to be a pandemic winner, but its business has been experiencing revenue growth for years. “With its unmatched logistics capabilities and technological arsenal, JD is seemingly consolidating its ecosystem these days,” Platonov says. He cites JD.com’s recent investment in delivery company Dada Nexus (DADA) and development of platform Jingxi to fend off competitors. “JD appears fully equipped to combat for (market share in) China’s growing low-tier cities,” he says.
Year-over-year return: 83%
Infosys is an India-based technology company that provides business consulting, outsourcing, digital and engineering services internationally. The company has exhibited strong performance, with steadily increasing revenues from $10.9 billion in 2018, $11.8 billion in 2019 and $12.8 billion in 2020. “We recently raised our 12-month price target on INFY to $25,” says Moshe Katri, equity research analyst at Wedbush Securities. Katri cites the company’s third-quarter results and its revenue growth guidance increase for fiscal year 2021. Digital transformation has been at the forefront of the company’s strategy, spurring much of its growth, which is anticipated to continue. “We believe the company’s record six to 12 months bookings (majority from new clients looking for help in their digital transformation initiatives) as well as margin expansion opportunities from (a) pandemic-induced work-from-home model, will collectively drive an acceleration in (the 2022 fiscal year’s) revenue growth,” Katri says.
Year-over-year return: 125%
China has the largest e-commerce market in the world, and Pinduoduo is one of the dominant players in this arena. PDD is a Shanghai-based e-commerce company and leader in China’s digital economy. The company’s mobile platform offers products such as apparel, food, electronic devices, household goods and the like. Kevin Carter, founder of EMQQ, the $1.9 billion Emerging Markets Internet & Ecommerce exchange-traded fund, says the heart of Pinduoduo’s business is agriculture. “Nearly 15% of Pinduoduo’s (gross merchandise value) comes from agricultural products. It just goes to show that there are all sorts of value chains that can still be digitized and monetized,” he says. PDD invests in agriculture technology to enhance production in a sector that contributed more than 7% to China’s GDP in 2019. In 2020, Pinduoduo had more annual active users than online retail giant Alibaba. PDD recorded 788 million active buyers compared with BABA’s 779 million. PDD will likely continue to be a benefactor of a growing Chinese population making online mobile purchases and buying daily essentials.
Year-over-year return: 220%
Established in 1968, Posco is one of the largest steel producers in the world. PKX has two steelworks in Pohang and Gwangyang, South Korea, and currently operates in more than 50 countries. The company has steel, power and chemical plants, infrastructure facilities, and a number of development projects in Asia, the Middle East, South America and Europe. As the market experiences a rotation from growth to value stocks, “investors are looking overseas to grittier industrial value plays that had been all but abandoned,” says Charles Sizemore, chief investment officer at Sizemore Capital, a Dallas-based registered investment advisory. Sizemore predicts a ramp up in construction projects in the wake of President Joe Biden’s $2 trillion infrastructure bill. He says an increase in infrastructure spending is not exclusive to the U.S. “Virtually every country in the world will be looking to jump-start their economies this year, and a politically popular way to do that is with infrastructure spending,” Sizemore says. “An uptick in building activity in the developing world should mean solid export growth for Posco and its peers.”
Year-over-year return: 95%
HDFC Bank (HDB)
Mumbai-based HDFC Bank provides banking and financial services to individuals and businesses in India, Bahrain and Hong Kong. From its inception in 1994, this Indian bank stock has expanded into more than 5,400 branches in more than 2,800 cities. “HDFC Bank’s secret to success is its culture of credit discipline, its technology leadership and the fact that it competes primarily against state-run banks, which are generally slow-moving and inefficient,” says Amit Anand, co-founder of NextFins, the firm behind the Nifty India Financials ETF (INDF). The bank’s management is aware of the digital transformation in banking and has invested in technologies such as investment platform Smallcase, which allows retail investors to invest in low-cost stocks and exchange-traded funds and will help support HDB’s growth. Anand says that HDB’s tech leadership is demonstrated by its 90% of electronic transactions either through ATM, the bank’s website or mobile app. “Given the increasing smartphone penetration in India, which now stands at 40% of the Indian population, HDFC Bank is in a pole position to capture customers who prefer to do their banking digitally,” he says.
Year-over-year return: 77%
Veon is a communications services company with operations in Russia and other business segments in Pakistan, Ukraine, Kazakhstan and Uzbekistan. The company provides a wide range of voice, data and telecommunication services to businesses and consumers. With Veon’s more than 200 million total active subscribers, the company plans to expand its global mobile network infrastructure to meet demand for its digital services. The company has built strategic relationships with brands in developing countries, connecting it to millions of customers. Some of these brands include Banglalink, a large cellular service provider in Bangladesh; Beeline, a mobile operator in Kazakhstan; and Jazz, the largest mobile operator in Pakistan, among several others. Investors may look at Veon stock and perceive it to be undervalued with a market price of around $1.72. The stock is up more than 10% year to date.
Year-over-year return: 7.5%
Emerging-market stocks to buy and hold:
— Taiwan Semiconductor Manufacturing (TSM)
— JD.com (JD)
— Infosys (INFY)
— Pinduoduo (PDD)
— Posco (PKX)
— HDFC Bank (HDB)
— Veon (VEON)
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