Investing 101: How to Invest in Emerging Markets

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(Article by Becca Lipman. List compiled by Eben Esterhuizen, CFA. EPS data sourced Yahoo! Finance, institutional data sourced from Fidelity, all other data from Finviz.)

By and large, Americans tend to limit their investments to US markets, rather than stray outside the border. Which makes sense, given they're more familiar with companies listed in the good old U. S. of A.

But the fact is, there's a whole wide world of markets out there. Meaning greater stability and better returns may await - it just takes some courage (and knowledge) to make the leap.


Emerging markets are likely to produce much stronger growth than developed markets over the next several decades, says Ron Weiner, president of RDM Financial Group. (via DailyFinance) What's more, a growing middle class and lower debt levels may make a number of emerging markets look tempting.

Of course, it is wise to remember that opportunities and risks come hand-in-hand.

Here's what you need to know to help you take the plunge: 

 

First thing's first: Pick a region and learn everything you can about it. Study the population, the government, the culture, the market trends, learn about the average income levels, inflation rates, and about the region's traded goods. Is there a growing demand for those goods? Study current events and scan headlines, and find out who else is investing in the region and why.

Sheryl Nance-Nash of DailyFinance reminds us that "emerging market investments are known for their volatility, and in less stable regions, local politics can have an out-sized effect on returns." Learning as much as you can about the market can be your best weapon in making trade decisions.

 

Rookie mistakes: As the old saying goes, "don't put all your eggs in one basket." It's almost always a good idea to diversify your portfolio. If one industry does poorly, there's a chance another has done well, saving diversified investors from large losses.

The same rule of thumb applies to global markets. Not all regions are created equal - one country may report record high yearly returns while a neighboring region reports losses. If you are going to invest in emerging markets, diversification in industry as well as country is generally considered wise.

What's more, start small, and if you care about dividends then go for dividends. Don't give up your investor values simply because you're "out of your element."

"Foreign markets offer more than just stocks. Emerging market bonds (including local currency denominated, inflation indexed, and also corporate securities) are an asset class growing in size and -- if handled correctly -- can help you diversify your portfolio," according to Adrian Cronje, chief investment officer at Balentine. (via DailyFinance) 

 

Look before you Leap: Andrew Foster, Founder of Seafarer Capital Partners reminds us to keep an eye out for these three things:

1. Inflation - This is a headline issue for emerging and developed markets. Inflation may be greater than most analysts are willing to admit. Inflation can create a headwind for growth and force economies to go through awkward periods of adjustment. 
2. Currencies - some are very stretched - volatility is a source of risk, and as a novice one should avoid currency speculation.
3. Some emerging markets may need to see moderation in growth. Very high rates of growth may not be sustainable.

 

If you've done your research and decide you can handle the idea of your money in oversea markets, you may be ready to begin the journey into emerging markets. But how to get there?

Exchange Traded Funds and mutual funds with focuses on emerging markets can provide a good vehicle to jump on. For the more hands-on investor, DailyFinance recommends Covestor, an asset management firm with market models managed by experts. "Replicating the trades of a seasoned emerging markets investor through Covestor or another mirrored investing firm is a good way for people to gain experience investing in emerging markets," says Kalen Holliday, a spokeswoman for Covestor.
 
Looking for a good starting point? Here's a list of six emerging market stocks with institutional buying and rising EPS estimates.

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1. Concord Medical Services Holdings Limited (CCM): Operates a network of radiotherapy and diagnostic imaging centers in the People's Republic of China. Net institutional purchases in the current quarter at 8.5M shares, which represents about 91.89% of the company's float of 9.25M shares. The EPS estimate for the company's current year increased from 0.49 to 0.5 over the last 30 days, an increase of 2.04%. This increase came during a time when the stock price changed by -5.06% (from 3.56 to 3.38 over the last 30 days).

2. China Fire & Security Group, Inc. (CFSG): Engages in the design, development, manufacture, and sale of various fire safety products for the industrial and special purpose infrastructure industries, as well as the design and installation of industrial fire safety systems in the People's Republic of China and India. Net institutional purchases in the current quarter at 2.2M shares, which represents about 25.94% of the company's float of 8.48M shares. The EPS estimate for the company's current year increased from 0.55 to 0.61 over the last 30 days, an increase of 10.91%. This increase came during a time when the stock price changed by 9.74% (from 7.8 to 8.56 over the last 30 days).

3. hiSoft Technology International Ltd. (HSFT): Provides outsourced information technology (IT) and research and development services in North America, Europe, and Asia. Net institutional purchases in the current quarter at 5.1M shares, which represents about 24.16% of the company's float of 21.11M shares. The EPS estimate for the company's current year increased from 0.78 to 0.82 over the last 30 days, an increase of 5.13%. This increase came during a time when the stock price changed by -10.55% (from 10.71 to 9.58 over the last 30 days).

4. 51job Inc. (JOBS): Provides integrated human resource services primarily in the People's Republic of China. Net institutional purchases in the current quarter at 737.8K shares, which represents about 8.27% of the company's float of 8.92M shares. The EPS estimate for the company's current year increased from 1.98 to 2.09 over the last 30 days, an increase of 5.56%. This increase came during a time when the stock price changed by 1.94% (from 51 to 51.99 over the last 30 days).

5. Qihoo 360 Technology Co. Ltd. A (QIHU): Provides Internet and mobile security products in the People's Republic of China. Net institutional purchases in the current quarter at 5.0M shares, which represents about 6.83% of the company's float of 73.18M shares. The EPS estimate for the company's current year increased from 0.24 to 0.35 over the last 30 days, an increase of 45.83%. This increase came during a time when the stock price changed by 24.5% (from 18 to 22.41 over the last 30 days).

6. SouFun Holdings Ltd. (SFUN): Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China. Net institutional purchases in the current quarter at 3.2M shares, which represents about 32.39% of the company's float of 9.88M shares. The EPS estimate for the company's current year increased from 1.27 to 1.39 over the last 30 days, an increase of 9.45%. This increase came during a time when the stock price changed by -2.28% (from 18.4 to 17.98 over the last 30 days).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: CCM , CFSG , HSFT , JOBS , QIHU , SFUN

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