When the developed world sneezes, emerging economies catch a
cold. This fear explains why investors are quick to shed their
emerging-market holdings when the U.S. and European indexes hit
rough waters. But it may be time for a new set of rules for
investors to follow.
Many economies outside the United States and Europe are far better
managed than in decades past, so they're no longer one step away
from yet another major crisis. Sure, the problems facing Greece are
immense, but the relative health of a number of smaller economies
is strong and getting stronger. Not only do these countries pose
less global risk than they once did, they also offer more stability
than before. Rising middle classes that stimulate greater domestic
consumption means they are less dependent on the boom and bust of
It's exactly these types of countries that get my attention as an
Crucially, investors need to understand that rapid advances in
living standards should set the stage for robust growth in the
decades to come, likely far more robust that what we should expect
in the United States and Europe. The
International Monetary Fund (
says this trend is already underway. In its latest growth
projections for 2012 (released in September), the banking
institution predicts emerging economies will grow 6.4% in 2012,
while developed economies are expected to grow a mere 1.6%. The key
"The situations of emerging and developing economies vary
widely, but after strong growth in recent years and on the horizon,
most are in the enviable position of being able to invest in growth
and employment and to brace against future global economic
Still, many of these
have taken it on the chin anyway in recent months, as investors
have been selling off anything that isn't nailed to the floor. As a
result, you can now have some of the most dynamic and promising
economies for discount prices.
I've decided to profile three emerging economies worth a deeper
look. Each of these three markets are valued at less than 10 times
, as measured by the stocks held in each of their primary indexes.
These aren't the usual suspects (Brazil, Russia, India, China), as
I've said increasingly that while BRIC is important, investors need
to avoid fixating on these countries and pay attention to the NEXT
big growth stories around the globe. Let's take a look...
As I've noted in
a past profile
, Turkey is possibly the most advantageously-situated country in
the world, just steps away from southern Europe, central Asia,
Russia and the Middle East. As a result, the country is boosting
trade in virtually every direction.
Notably, each of those trading partners appears to be on sound
economic footing with rising national income: Neighboring trade
partners in the Middle East are awash with petro-dollars now that
oil is back up near $100 a barrel; Russia, the world's
second-largest exporter of crude oil (after Saudi Arabia) is also
flush; and in Asia, the
foresees an incredible 8% domestic product growth in 2012.
Turkey has growing pains, though. The country is running a trade
as its fast-rising middle class goes on a shopping spree. This
means import growth needs to slow in order to alleviate
concerns. Also, Syria and Egypt are key trading partners, and these
countries' economies are slumping badly right now due to domestic
upheaval. But in the long haul, Turkey represents one of the most
dynamic growth opportunities in the developing
exchange-traded fund (
iShares MSCI Turkey InvestableMarket Index (NYSE:
has slid from $70 in early May to a recent $43, creating a fresh
entry point for investors.
2. South Africa
After a string of lost decades, key African economies are starting
to make major gains. The continent has always been blessed with a
lot of natural resources, but emerging middle classes are helping
to establish rising domestic consumption. That's why the IMF says
the countries in Sub-Saharan Africa will see their economies grow a
collective 5.8% in 2012 (after growing a solid 5.2% this year).
South Africa still stands as the best way to play the region,
because its major firms have a strong regional presence in
countries such as Nigeria, Botswana and Ghana. Best of all, the
has become more attractively-priced in recent months. The
iShares MSCI South Africa Index (NYSE:
has fallen from 20% during the past six months to a recent $59 and
remains below levels seen back in 2007.
While much investor attention has been focused on Brazil and Chile,
the Argentinian economy has started to build its own head of steam.
This may be the start of a long-term reversal after 110 years of
misery: In 1900, Argentina had the fourth-largest economy in the
world, thanks to abundant exports of cattle and other goods.
a decade ago has made its exports competitive once again. Gone are
the days when Argentinian firms would see customers snatched away
by lower-cost rivals in Brazil. A surging Brazilian real now makes
Argentina the low-cost player in the region ($1 today buys about
$4.26 argentine pesos, compared with $1.85 reals). Its stocks also
sport lower prices. The
Global X FTSE Argentina 20 ETF (Nasdaq:
, for instance, was launched in March at about $15 and has since
fallen below $11. The fund owns a broad basket of Argentina-based
firms such as
oil giant YPF (NYSE:
, e-commerce firm
, fast-food operator
Arcos Dorados (Nasdaq:
and mining firm
Take a look at the market performance for the three countries in
the past five years...
Risks to Consider:
These markets are only slowly
from developed economy markets, so any steep drop in the United
States and Europe will surely have a negative effect on their
Action to Take -->
The key to investing in these emerging markets is to focus on the
long-term. These bargain-priced ETFs look positioned to deliver
superior returns during the long haul and are best bought on
periodic dips such as what we're seeing now.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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