David Semple is a portfolio manager at VanEck covering emerging markets stocks. He published an April 17 blog post about the VanEck Emerging Markets Fund’s (MUTF:GBFAX) Q1 2023 performance with his colleague, Oksana Miller, a senior product manager at the asset manager.
Here’s what they had to say about the outlook for emerging markets:
“The debate on the trade-off between sticky inflation and concern about economic weakness in D.M. has impacted the appetite for E.M.,” Semple and Miller wrote.
“We think the impact of lower rates and a weaker U.S. dollar will ultimately be positive in an asset class that has demonstrated its orthodox approach to financial management. The outlook is bright with the strong tailwind of building economic confidence in China.”
Of course, they have a vested interest in emerging markets rebounding, but the argument holds water as far as I’m concerned.
Accordingly, based on the fund’s top holdings, these three emerging markets stocks could be the next big thing.
HDFC Bank (HDB)
The first of three emerging market stocks on this list is HDFC Bank (NYSE:HDB), which stands for Housing Development Finance Corporation. It is the VanEck fund’s fourth-largest holding, with a weighting of 4.7%.
As its name suggests, HDFC Bank is a top bank stock, and one of India’s top private banks. It received its charter to operate as a private-sector bank in 1994. Currently, the lender has 7,821 branches across India and 19,727 ATMs.
Business Insider India reported on April 17 that the merger between HDFC Bank, India’s Largest private sector lender, with HDFC, the country’s largest Housing Finance Company, is set to conclude in July. This merger has already received in-principle approvals from India’s various securities and banking regulators.
The move is expected to add foreign investor inflows of up to $3 billion. Now, some investors are speculating that HDFC Bank could try to speed up the merger process, so that the merged entity could make MSCI’s quarterly index review.
In the latest quarter ended Mar. 31, the bank’s net interest income rose 23.7% to ₹23,352 crore ($2.84 billion), while its net profit grew 19.8% to ₹12,048 crore ($1.46 billion). As for credit quality, the company’s net non-performing assets were 0.27%, six basis points less than the previous quarter.
Notably, of the 39 analysts covering its stock, 37 rate it either overweight or an outright buy, with a target price of $72.29, slightly higher than where it’s currently trading.
I’ve repeatedly recommended MercadoLibre (NASDAQ:MELI) over the past few years. The Latin American e-commerce and payments company is the VanEck fund’s fifth-largest holding at 4.3%. In addition, MELI stock was one of the fund’s top three performers in the March quarter.
Year-to-date, MELI stock is up more than 58% and 21% over the past 52 weeks, considerably better than the S&P 500’s -6.8%.
“The company delivered a solid pace of growth in 4Q2022, with overall gross merchandise value (GMV) expanding 35% Year-over-Year (YoY) and positive results in every country in which they operate,” VanEck stated.
“MELI continues to benefit from e-commerce adoption and market share gains. The e-commerce take rate continues to see improvement. MELI also became more vocal about advertising revenues, increasing the business’s visibility.”
At the end of March, Morgan Stanley analysts raised their price target for MELI stock to $1,770, $150 higher than its previous target, while reiterating their overweight rating on the stock. Thus, it’s no surprise the investment bank considers MercadoLibre to be one of its top picks.
“Our analysis shows that EBIT economics is not driven by just one business line — supporting the durability of MELI’s profitable growth outlook,” Morgan Stanley said. “In our 2027E build, we see the core marketplace, credit, and first-party merchandise sales as the largest revenue contributors, but with no single line accounting for more than 25% of the mix.”
Indeed, MercadoLibre is the best stock in Latin America that trades on a U.S. stock exchange, in my view.
Bloomberry Resorts (BLBRF)
The final of my three emerging markets stocks to buy is Bloomberry Resorts (OTCMKTS:BLBRF), a Philippines-based developer and operator of luxury resorts, including the Solaire Resort Entertainment City, the first luxury hotel and casino in Central Manila’s Entertainment City.
The VanEck fund has a 1.58% weighting in the stock. Additionally, it is the fund’s 19th-largest holding.
Bloomberry reported its Q4 2022 and full-year results at the beginning of April. It returned to profitability in 2022, earning 5.1 billion Philippine Pesos ($90.7 million) on revenue of 38.9 billion Philippine Pesos ($691.5 million). That’s 77% higher than in 2021.
Even better, its gaming revenue at its resorts was 84% of pre-pandemic levels in 2022, a sign that Bloomberry’s business is nearly fully-recovered from the pandemic.
In Q4 2022, the company’s occupancy rate was 73.5%, 10.4 percentage points higher than in Q3 2022, and more than 3-times its occupancy rate in Q4 2021. Across the board, its revenue streams were much more robust in 2022.
Buying stock in Bloomberry is a play on the Asian gambling market. Gaming accounts for 81% of its overall revenue. Thus, as gaming goes, so goes Bloomberry.
One note of caution: the Over-the-Counter volume on this one is minimal. Accordingly, I think investors can consider shares in the VanEck fund as an alternative way to own Bloomberry Resorts stock.
On the date of publication, Will Ashworth 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.