The U.S. stock market still remains under the looming shadow of market volatility which commenced in February. Notably, President Trump’s tariff policies raised fears of a global trade war and spurred inflationary concerns and geopolitical conflicts, resulting in stock market volatility. Further, Trump’s decision to terminate Iran nuclear deal only accentuated the issue.
Markets remain highly unstable with rapid ascent being witnessed in one week, followed by a sharp decline the very next week. Investors remain skeptical about the imposition of tariffs despite the fact that fundamentals of the U.S. economy remain robust.
At this juncture, emerging market stocks with strong growth potential may become a new avenue for investors to cushion their portfolio. Strong global growth, low valuation of emerging market assets and structural reforms taken by various governments has transformed emerging market stocks into attractive bets.
Emerging Markets to Experience Healthy Growth in 2018
In January 2018, the World Bank projected that the global economy is set to expand by 3.1% in 2018. However, emerging economies will grow around 4.5% in 2018 and an average of 4.7% in both 2019 and 2020. Per the World Bank, East-Asia and Asia-Pacific region will be the fastest-growing regions globally.
Recently, the IMF reaffirmed that the global economy will grow at 3.9% in both 2018 and 2019. However, emerging markets of Asia will grow at around 6.5% over 2018–2019. Emerging markets of Europe will expand by more than 5% while Latin America will grow at 1.9% and 2.6% in 2018 and 2019, respectively.
Fundamentals Remain Strong
Emerging markets look attractive buoyed by improving economic growth in a number of developing countries, a pickup in manufacturing activity, rise in commodity prices, better current accounts balances, building foreign reserves, better-than-expected earnings, and several structural reforms taken by governments.
Governments of China, South Korea and Philippines have taken large infrastructural projects. Massive government spending are also supporting private investment growth in the region, particularly in the export-oriented industries.
Meanwhile, tax reforms and business-friendly policies of the governments are bolstering investment in several Latin American countries, including Argentina, Brazil and Chile. Argentina recently proposed to reduce corporate tax rate from 35% to 25% and the lowering of employer social security contributions.
Our Top Picks
Of late, emerging markets have achieved a significant position in the global investment space. To boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or offering some accommodative measures.
In 2018, emerging markets may emerge as hidden gems in the global investment arena. We have narrowed down our choices to five stocks each sporting a Zacks Rank #1 (Strong Buy) and strong growth potential.
JinkoSolar Holding Co., Ltd. (NYSE:JKS) based in Shangrao, China, the company is a leading solar product manufacturer. JinkoSolar’s principal products are silicon wafers, solar cells and solar modules.
JinkoSolar Holding has expected earnings growth of 119.1% for current year. The Zacks Consensus Estimate for the current year has improved by 31.9% over the last 60 days.
Noah Holdings Limited (NYSE:NOAH) based in Shanghai, China, the company is engaged in providing independent services primarily comprising of distribution of wealth management products to the high net worth population in China.
Noah Holding has expected earnings growth of 16.4% for current year. The Zacks Consensus Estimate for the current year has improved by 23% over the last 60 days.
Ternium SA (NYSE:TX) based in Buenos Aires, Argentina, the company is the leading producer of flat and long steel products of Latin America and consolidates the operations of the steel companies Hylsa in Mexico, Siderar in Argentina and Sidor in Venezuela.
Ternium has expected earnings growth of 25.5% for current year. The Zacks Consensus Estimate for the current year has improved by 60.3% over the last 60 days.
Grupo Supervielle SA (NYSE:SUPV) based in Buenos Aires, Argentina, the company is a private domestically-owned financial group primarily in Argentina. The company owns Banco Supervielle S.A., an Argentine private domestically-owned bank.
Grupo Supervielle has expected earnings growth of 27.7% for current year. The Zacks Consensus Estimate for the current year has improved by 4.3% over the last 60 days.
TIM Participacoes SA (NYSE:TSU) based in Rio de Janeiro, Brazil, the company is the sole wireless service provider throughout Brazil.
TIM Participacoes has expected earnings growth of 27.5% for current year. The Zacks Consensus Estimate for the current year has improved by 4.1% over the last 60 days.
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