The U.S. is undoubtedly home to a plethora of companies with strong financials whose stocks make for solid, relatively stable investments. But while it’s never a bad idea to invest heavily in American equities, you may also want to broaden your horizon with emerging market stocks.
From an investor’s point of view, the social mores and economic prowess of the U.S. easily make it one of the biggest players on the world stage. However, this status is not a surprise, meaning that emerging market stocks have a much higher return potential by default.
For those who are seeking to expand their portfolio beyond U.S. borders, you should read Wall Street Journal contributor Dan Weil’s excellent pros and cons analysis of the fundamentals driving emerging market stocks. One highlight from the article was this thought-provoking statistic: worldwide, approximately 90% of the population under 30 years of age lives in emerging nations.
Some experts, particularly author and economic analyst Harry Dent, proclaim that demographics are destiny. If you follow that reasoning, you ought to consider emerging market stocks. That’s where the youth of the world is, and therefore where the next outpouring of innovation and ingenuity might spark from.
Further, if your retirement is several calendar pages away, then you can afford to take risks. While going American may be the safer option, these emerging market stocks may give you the pizzazz you’re looking for:
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Cemex (NYSE:CX)
- Sea (NYSE:SE)
- Hello Group (NASDAQ:MOMO)
- Yandex (NASDAQ:YNDX)
- Naspers (OTCMKTS:NPSNY)
- Petrobras (NYSE:PBR)
To be 100% clear, no investment thesis is without risk. For emerging market stocks, the number one threat has to be volatility. These markets will go through growing pains. But if you have the time and patience, this segment is worthy of your consideration.
Emerging Market Stocks: Sociedad Quimica y Minera de Chile (SQM)
Typically, I don’t like taking low-hanging fruit because it’s usually uninteresting for readers. However, Sociedad Quimica y Minera de Chile is practically rolling on the floor leading up to my doorstep.
Most of you probably won’t pick up a penny in a dirty parking lot. But if it was an 1885 Morgan Silver Dollar, I’m sure you’d go to considerable lengths to pick that up. The latter is what SQM represents.
Headquartered in Santiago, Chile, SQM is located in the lithium triangle: the area where Chile, Argentina and Bolivia intersect. According to Harvard International Review, this region holds more than three-quarters of the world’s lithium supply under its salt flats.
Not surprisingly, SQM is one of the largest lithium producers in the world. This, of course, has strong implications for the electric vehicle (EV) sector. With legacy automakers rapidly building out their EV portfolio, SQM is easily one of the most relevant and confidence-inspiring emerging market stocks to buy.
One of the great things about being in the U.S. is that you don’t have to look very far for opportunities in emerging markets. Indeed, if you live in western half of the Sun Belt region, you just need to look south to Mexico. There, in addition to some amazing carne asada street tacos, you’ll find Cemex. The company is billed as a global leader in the building materials industry.
Two fundamental catalysts support putting CX stock on your radar. First, the country is building like crazy. For instance, Tijuana has grown considerably over the years, using its border-town status to help it transform into a well-respected economic zone.
Second, Mexico has a favorable population pyramid, as is the case for many emerging markets. Basically, this just means there are more younger people than there are older, giving Mexico the ability to replenish its workforce.
When you combine these two factors, CX stock is an easy pick.
Emerging Market Stocks: Sea (SE)
With so many enterprises spending billions of dollars fine-tuning their marketing initiative, Sea truly goes against the grain. I mean, I don’t think you can get any more vague than the corporate brand “Sea.”
But before you remove it from consideration, just note that SE stock is actually one of the top market performers among emerging market trades — or any equity category, for that matter.
On a year-to-date basis, shares of the consumer internet company have gained more than 67%. The stock has continued to gain momentum in the second half of the year, with shares up more than 20% over the trailing month.
You can chalk up the outperformance to its relevant businesses. As an integrated platform consisting of digital entertainment, electronic commerce and digital financial services, Sea provides critical services for the robust and increasingly viable Southeast Asia market and Taiwan.
Further, the financials are bonkers. Sea had 2020 sales of $4.4 billion, up 101% from the prior year, and trailing-12-month revenue of $6.8 billion. While I don’t want to pressure folks one way or the other, you may want to consider getting your foot in the door before this thing really takes off.
Hello Group (MOMO)
On the surface, China doesn’t seem like an emerging market — after all, outside of the U.S., it has the biggest economy in the world. However, China presently makes up over 40% of the MSCI Emerging Markets index. Trustnet stated that “China, Taiwan and Korea together account for around two-thirds of the index.”
However, it’s been difficult to find viable emerging market stocks in China due to the country’s difficult relations with the rest of the world. According to a survey conducted by the Pew Research Center, unfavorable views of the country have reached historic highs. Participants were generally critical of the government’s handling of the Covid-19 pandemic, and many had no confidence in Chinese President Xi Jinping.
One company that could fly under the radar, though, is Hello Group. Self-proclaimed as “a leading player in China’s online social and entertainment space,” it is perhaps best known for Momo, a social media app.
With the global health crisis robbing us of our ability to interact with each other face-to-face, I see a positive narrative for MOMO stock. Just be aware that this has been a volatile and disappointing investment thus far, so caution is warranted.
Emerging Market Stocks: Yandex (YNDX)
Russia has been in the news lately, and not always for positive reasons. That said, if you want to find intriguing emerging market stocks, Russia offers quite a few options.
To be fair, many if not most of these opportunities are tied to the energy and commodity space, given the country’s vast natural resources. However, it’s also home to technology firms that go beyond the usual scope of Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Speaking of Alphabet, the tech giant’s Google brand essentially dominates the internet. For instance, Google is not only a proper noun, but also a verb.
However, that sentiment doesn’t quite ring true in Russia, where it’s all about Yandex. A few years back, CNBC highlighted Alphabet’s challenges in gaining market share in the Russian market.
Arguably, it’s a lost cause. As CNBC stated, “Like Google, Yandex is so much more than a search engine. It offers email, cloud, and online payment services, streaming music, news aggregatio, and live traffic maps.”
Also, Yandex.Taxi merged with Uber (NYSE:UBER) in 2018 and has been testing self-driving cars. Recently, the company expressed an interest in increasing its majority stake and possibly taking full control of its ridesharing service.
Keep YNDX stock on your radar, especially since Russia is one of the BRICS emerging nations.
When people think about South Africa as an investment opportunity for emerging market stocks, they’re usually thinking about gold production. Indeed, the country is blessed with abundant resources, but gold production there has notably decreased in recent years.
Like Russia earlier, it might be time to rethink South African emerging market stocks, and Naspers would like to lead the charge. A multinational holding company headquartered in Cape Town, Naspers is one of the largest tech investors in the world. It has publishing, online retail and venture capital projects in the consumer internet sector.
Though a challenging environment, the Covid-19 crisis bolstered the company’s profile substantially. In the fiscal year ended March 31, 2020, it generated revenue of $22.1 billion, up about 23% from the prior year. However, in the pandemic-disrupted FY 2021, Naspers rang up over $29.6 billion in sales, an increase of 38% from 2020’s result.
While NPSNY stock is risky, shedding 34% over the trailing six months, if Naspers continues to post strong fiscal performances, the red ink could change to black.
Emerging Market Stocks: Petrobras (PBR)
Finally, I must round out this list of emerging market stocks with Brazil’s Petrobras, a state-owned corporation in the petroleum industry. Representing the “B” in BRICS, Brazil is similar to other emerging nations in that is has an abundance of natural resources.
Brazil also has a workable population pyramid, with a large number of people of healthy working age. Still, one thing I did find interesting was that it has a larger population of people ages 15 through 39 than those 19 years old and younger.
But where Brazil starts to dissuade investors is corruption. Transparency International states that this is “one of the biggest impediments to economic development” in the country. If you don’t want to put your money here, I totally understand.
Nevertheless, there’s something to be said about the higher-reward profile of risky investment sectors. With PBR stock, it’s possible the underlying company could benefit from the gradual return to normal. Additionally, Brazil is a non-OPEC country and provides a more palatable source of imported energy for the U.S.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.