5 Value Picks to Exploit the Dip in Emerging Markets


Emerging market stocks continued to suffer losses on Wednesday as trade relations between the United States and China worsened. Most developing market currencies declined with the yuan moving lower for the 10th successive day. The iShares MSCI Emerging Markets ETF finished in the red, declining for the ninth time in the last 11 sessions.

5 Value Picks to Exploit the Dip in Emerging Markets

Experts have likened investing in emerging markets at this time to “catching a falling knife.”  But several major investors have predicted that U.S. markets will soon witness a correction.

A decline in the current bullish pace of GDP is also imminent. With investors likely to seek out risky assets, this could be the right time to buy into emerging markets’ stocks on the dip.

Currencies Feel the Heat, Losses Mount for Stocks

Emerging markets are suffering heavy losses as the trade spat between Washington and Beijing intensifies. Most emerging market currencies are on a downtrend with the yuan declining for the 10th successive day, marking its longest stretch of losses since March 2014.

Disappointing economic data has felled Argentina’s Merval while Hungary’s forint has plunged to a record low. JP Morgan’s (NYSE:JPM) emerging market currencies gauge has declined every day this week and is currently 0.6% below Friday’s close. It is also down 8.8% for the second quarter as of date.

Equity markets in these regions are also feeling the heat of trade tensions and a surging dollar. The iShares MSCI Emerging Markets ETF has lost around 10% in June and is currently 20% below the peak it hit in late January. In fact, this key emerging market gauge has lost 8.8% over the second quarter and is nearing a bear market territory.

U.S. Markets May Face Correction, Growth Could Decline

Trade tensions, the Fed’s rate hike and a strong dollar have combined to usher in tough times for emerging markets. However, some analysts believe that investors are overreacting at present and this could change rapidly. With investor expectations at their nadir, a few positive developments could go a long way for stocks.

At first glance, of course, such a strategy could appear counterintuitive. Steady economic growth, low unemployment and a strong dollar have bolstered market bulls, which have gone on to advise investors to park their cash in U.S. equities. But some analysts believe that U.S. markets are peaking and a correction is around the corner.

Further, the surge in the U.S. dollar looks increasingly unsustainable. Additionally, even though GDP will likely come in strong for the second quarter, this pace of growth may be difficult to justify over the long term.

Given these factors, it only makes sense to invest in emerging market stocks at a time when they are reasonably priced. Some market watchers would point toward political uncertainty as a major risk factor for this class of investments. However, emerging markets have experienced such headwinds before. They have now successfully deleveraged their finances and diversified their export partners and businesses. This has had the effect of reducing the associated risk to a great extent.

Our Choices

While emerging market stocks look risky at present, a spark of optimism could trigger a rebound in this class of investments. Further, several investors are predicting a near-term correction for U.S. markets, despite the strong pace of economic growth. The surge in dollar also looks increasingly unsustainable.

Adding select emerging market value picks to your portfolio looks like a good option at this time. Our selection is also backed by a good Zacks Value Score and Zacks Rank.

We narrowed down our choices with the help of our new Style Score System.

Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value-investing space.

CNOOC (NYSE:CEO) is a company that engages primarily in the exploration, development and production of crude oil and natural gas in offshore China.

CNOOC sports a Zacks Rank #1 (Strong Buy) and has a Value Style Score of A. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.90 lower than the industry average of 8.56. It has a PEG ratio of 0.34, lower than the industry average of 0.70.

Sasol (NYSE:SSL) is engaged in the mining and processing of coal. It also produces chemicals, explores for and refines crude oil, and manufactures fertilizers and explosives. The company is headquartered in Johannesburg, South Africa.

Sasol has a Value Style Score of A. The stock has a Zacks Rank #1.

Woori Bank (NYSE:WF) offers a range of banking products and services to individuals and businesses in South Korea.

Woori Bank holds a Zacks Rank #2 (Buy) has a Value Style Score of A. The stock has a P/E (F1) of 6.28x, lower than the industry average of 10.98. It has a PEG ratio of 1.05, lower than the industry average of 1.43.

PLDT (NYSE:PHI) offers telecommunications services in the Philippines.

PLDT holds a Zacks Rank #2 and has a Value Style Score of A. The stock has a P/E (F1) of 10.20x, lower than the industry average of 16.58.

Cementos Pacasmayo (NYSE:CPAC) is a cement company engaged in the distribution and selling of cement and cement-related materials, such as concrete blocks and ready-mix concrete in the northern region of Peru.

Cementos Pacasmayo holds a Zacks Rank #2 and has a Value Style Score of B. It has a PEG ratio of 0.71, lower than the industry average of 1.37.

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