Keep in mind commodity prices and foreign-exchange rates.
In addition to individual company issues, emerging market investors often need to pay attention to currency and commodity fluctuations in ways they don’t with developed nations. That’s because emerging market economies are often more dependent on commodity exports. When commodity prices decline, those exports suffer and the nation’s currency can fall, making it harder for local companies to pay back loans denominated in, for example, U.S. dollars. You can’t talk about emerging markets without discussing the BRICs — Brazil, Russia, India and China. As some of the world’s largest economies, it might seem odd that these four are considered emerging markets. But keep in mind that their gross domestic product per capita is still relatively low. Here are seven emerging market picks to consider.
Baozun (ticker: BZUN)
Baozun, a China-based e-commerce company, helps brands execute their e-commerce strategies by selling their goods directly to consumers online or by providing other services — including digital marketing, customer service and warehousing — to assist with their e-commerce operations. Amid the pandemic, e-commerce is an important way for many people to buy goods while still maintaining social distancing. That seems to have benefited Baozun. In its first-quarter unaudited financial results, the company’s total net revenues were $308 million, up 32% year over year, and income from operations increased 313%. It’s also notable that Baozun’s first-quarter performance in 2020, during the early days of the pandemic when global markets tanked, showed that total net revenue increased 18.4% — though increasing expenses caused its net income to decline from the previous year.
Centrais Eletricas Brasileiras, also known as Eletrobras, is the largest company in the electric energy sector in Latin America. Dave Iben, chief investment officer with Kopernik Global Investors, likes this emerging market stock because it’s one of the world’s largest producers of cheap, greenhouse gas-free hydroelectric power. Economic growth in Brazil — Latin America’s largest economy — has been in recovery mode since it fell into a recession in 2015 because of factors including lower prices for Brazil’s main commodities of oil, sugar, coffee and metals. But the utilities sector is often considered defensive for investors because households need electricity regardless of what the economy is doing, leaving Eletrobras in a relatively good position with its large role in generating and transmitting electricity in Latin America’s premier economy. To top it off, Iben says Eletrobras is also trading inexpensively.
Vale S.A. (VALE)
Brazil-based Vale is a global leader in producing iron ore, nickel and copper, some of the most used metals in the world. Another area of Vale’s business is its logistics network, used in Brazil and other areas of the world for maritime terminals, railroads and ports. Vale may be positioned to perform well since the global economy will be demanding raw materials like iron ore, which is one of the leading products the company produces. Vale has multiple mine pools, which means it has strong production and plenty of sources for its assets. VALE also pays a competitive dividend, currently yielding 3.5%, and the stock is up about 27% this year.
Housing Development Finance Corp. (HDFC)
Housing Development Finance Corp. is the leading provider of housing finance in India. The company has a lot of experience working in developing countries’ underdeveloped housing finance markets with assignments throughout Asia, Africa and Eastern Europe. In addition to making residential and commercial loans, the company has stakes in businesses involved in banking, insurance and mutual funds. HDFC has financed 8.4 million cumulative housing units, and as India’s economy continues to grow, the company is prepared to benefit from economic development in the years to come. As for the impact of the pandemic, the company says low interest rates and softer property prices have helped loan disbursements to revert to pre-pandemic levels.
Taiwan Semiconductor Manufacturing Co. (TSM)
With more people working, learning and entertaining themselves at home because of the pandemic, semiconductor makers have been doing well, and Taiwan Semiconductor Manufacturing Co. is no exception. The company is part of the so-called “stay at home” trade that has benefited from the health crisis, meaning it could be at risk for slowing growth once the pandemic is over. TSM holds strong market share in the semiconductor industry. It’s the world’s largest semiconductor foundry, manufacturing more than 10,000 different products for roughly 500 clients worldwide such as Apple (AAPL) and Advanced Micro Devices (AMD). Even though there has been a global shortage of semiconductors, due to the technology’s range of utility and demand, the production slowdown may not be a major setback for the company.
Alibaba Group Holding (BABA)
No list of emerging market stocks would quite be complete without at least mentioning Alibaba, the China-based e-commerce and cloud services giant. Alibaba has transformed the way merchants, businesses, brands and consumers interact with one another when buying and selling goods online. Its operations comprise multiple business segments, including e-commerce, cloud computing, digital media and entertainment. The company’s affiliate, Ant Group, also provides payment services to Alibaba’s users. In the company’s latest quarterly report, BABA announced that it reached a milestone of one billion annual active consumers worldwide in the fiscal year ended March 2021. The company also saw a 64% year-over-year increase in revenue for its most recent quarter. This is nothing new for Alibaba, as the company has been experiencing revenue growth on a consistent basis.
This financial services company has been shaking up the buttoned-down brokerage business in Brazil that has been dominated by big banks. In XP’s first-quarter earnings results, the company reported its strongest quarterly performance ever, led in part by its retail operations. Revenue drivers from that segment included financial products, equity and futures, and fixed income. XP announced in September 2020 that it was eliminating brokerage fees for online stock trades at Rico, its online-only solution for self-directed investors. The company also said it was reducing those fees by 75% for online stock trades at XP Direct. For its most recent quarter, revenue increased 50% year over year to 2.8 billion Brazilian reals.
Seven emerging market stocks to buy:
— Baozun (BZUN)
— Eletrobras (EBR)
— Vale (VALE)
— Housing Development Finance Corp. (HDFC)
— Taiwan Semiconductor Manufacturing Co. (TSM)
— Alibaba Group Holding (BABA)
— XP (XP)
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Update 06/18/21: This story was published at an earlier date and has been updated with new information.