One of the secrets of wealth creation is portfolio diversification. Within any specific geography, portfolio diversification is in the form of exposure to blue-chip, growth, and penny stocks. Further, identifying sectors with tailwinds can help boost portfolio returns. Considering a broader approach, exposure to different geographies can help in portfolio diversification and wealth creation. When it comes to geographic diversification, it’s impossible to ignore emerging markets.
An emerging market economy is the financial footing of a country that has headroom for significant growth considering the impending development in overall infrastructure. Developed and emerging economies can be clearly differentiated by looking at the GDP per capita.
To make things simpler, a developed economy can be likened to a blue-chip stock. On the other hand, an emerging economy is like a growth stock. In general, developed economy equities will provide stable returns. However, over a period of five or ten years, emerging market equities will outperform the developed market. That has been the case in the past.
Let’s explore the top emerging markets that look attractive from an investment perspective.
India
India is perhaps among the best emerging markets to invest for the long term. Even amidst challenges for several emerging markets, the NIFTY 50 (benchmark index) has trended higher by 8% for year to date (YTD). It looks to perform even better in 2024.
A big reason to be bullish on India is the fact that all major U.S. companies are looking at manufacturing diversification away from China. This affords India a big opportunity as the country pitches itself as an alternative to Chinese manufacturing.
Of course, China will remain a major manufacturing hub. However, companies seeking risk diversification are investing in India. This is likely to boost GDP growth and benefit some of the major local corporations. Some heavyweight companies focused on India include Apple (NASDAQ:AAPL) and Boeing (NYSE:BA).
In terms of price action in Indian stocks, MakeMyTrip (NASDAQ:MMYT) stock has trended higher by 43% for YTD. In fact, two bullish stocks that have consolidated in the last 12 months, Infosys (NYSE:INFY) and HDFC Bank (NYSE:HDB), look poised for a breakout rally in 2024.
China
To be sure, the Chinese economy is going through a stressful phase. The real estate sector is clearly in a recession, while the financial sector is feeling pressure. However, even with economic headwinds, two important points avail.
First, China’s GDP growth is projected at 5.2% in 2023. The economy is expected to “headline growth to trend consistently below 5% over the remainder of the 2020s”. Even with these estimates, it is poised to be well above the potential growth for developed economies.
Further, China is a large economy with some sectors in a recession and others performing well. Careful stock selection is likely to profitable especially since several value creators from China will surface in the coming years.
Prime examples include Li Auto (NASDAQ:LI) and Miniso Group (NYSE:MNSO), both of whose stock is surging by 63% and 123% YTD respectively. Yet, if growth decelerates further, expect a stimulus-driven rally for the Chinese markets.
Indonesia
For an investor with a time horizon of five to ten years, it’s impossible to ignore the Southeast Asian markets. Indonesia is one of the major markets in the region that can create value from the perspective of portfolio diversification.
In fact, real GDP is likely to slow down to 4.7% in 2023. However, growth will accelerate to 5.1% in 2024. Even beyond this period, growth in Indonesia is likely to remain robust.
Investors will question the rationale for choosing Indonesia among Southeast Asian economies. Reports indicate that upskilling can potentially boost Southeast Asia’s GDP by 4% or $250 billion by 2030. Of the new jobs created in the region, Indonesia is likely to unlock 50% of the potential regional additional employment in 2030.
Therefore, as job creation accelerates and the living standards improve, multiple industries can enjoy ample growth. The prominent ones will be consumption, real estate, and financial services.
On the date of publication, Faisal Humayun did not hold (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.
