U.S. markets have had a great 2016, clocking up considerable gains following a rally induced by Donald Trump's surprise electoral victory. Even though the year ended with profit taking, stocks have been on a roll, achieving new landmarks with unfailing regularity and flirting with others which still seem eminently achievable.
Since the performance of other markets has paled in comparison, investors have naturally opted to focus their attention on domestic stocks. The outlook for the current year is equally bright, though a minority of naysayers continues to issue warnings. Given the extent of recent gains, it makes sense to diversify into emerging market securities in order to protect your profits. Stocks from Brazil, Chile, Mexico and South Africa are particularly good choices.
Brazil, Chile Have Room to Recover
In Oct 2016, Chile's economy contracted for the first time in seven years. The decline was primarily attributed to a fall in mining and manufacturing activity. However, this is likely to urge the country's central bank to reduce interest rates in order to induce growth. Moreover, Chile's stocks will gain from the increase in prices of copper and expectations of business friendly policies post this year's presidential election.
Brazil's prospects seem somewhat bleaker at first glance. The country's economy is widely expected to contract over the year. However, the slack in demand could lead to a correspondingly lower rate of inflation which would result in a fall in interest rates, which in turn would spur investment.
Moreover, the country's benchmark index, the Ibovespa, has notched up significant gains following Dilma Rouseff's impeachment, as has the Real. Additionally, a stronger U.S. economy could lead to higher demand for the country's products this year.
Mexico, South Africa Remain Strong
South Africa is currently suffering from sluggish growth which itself is believed to be due to a lack of confidence in President Jacob Zuma. However, several analysts and market watchers believe that South Africa's president may soon have to make way for new leadership. Zuma has recently staved off calls from within this party to step down, but only narrowly. This has increased the allure of the country's securities and experts increasingly believe that the country will not have to suffer a debt downgrade.
Meanwhile, the peso has fallen to unprecedented lows following Trump's victory. This has increased the attractiveness of the currency among its Latin American contemporaries. The country's central bank, the Bank of Mexico, has adopted a hawkish stance which could push up inflows further. Additionally, market watchers now believe that the new U.S. presidency may not be as protectionist as was earlier believed.
Apart from offering the benefits of diversification, emerging market stocks offer the promise of strong returns. The best bets of the year are from markets benefiting from an improving political climate which also have the ability to withstand external shocks.
Stocks from Brazil, Mexico, Chile and South Africa are clearly among the top choices. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Vale S.A. VALE is one of the world's largest producers and exporters of iron ore and pellets, based in Rio de Janeiro, Brazil.
Vale has gained 141.4% over the last one year, underperforming the Zacks Mining - Iron Market sector, which has gained 145.5% over the same period. However, it has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 23.2% over the last 30 days. This provides a good opportunity to buy the stock given that there is significant upside potential
Braskem S.A. BAK is a producer and seller of thermoplastic resins based in Sao Paolo, Brazil
Braskem has expected earnings growth of 39.8% for the current year. Its earnings estimate for the current year has improved by 6.1% over the last 30 days. The stock has returned 60.1% over the last one year, outperforming the Zacks Oil and Gas - Integrated - Internationa l Market sector, which has gained 20% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Chemical & Mining Co. of Chile Inc. SQM produces fertilizer and iodine and manufactures industrial chemicals and iodine derivative products.
Chemical & Mining Co. of Chile has a Zacks Rank #2 (Buy). The company has expected earnings growth of 24.5% for the current year. Its earnings estimate for the current year has improved by 3.9% over the last 30 days. The stock has returned 52.9% over the last one year, outperforming the Zacks Fertilizers sector, which has gained 6.4% over the same period.
Grupo Simec, S.A.B. de C.V. SIM is a leading mini-mill steel producer in Mexico and manufactures a broad range of non-flat structural steel products
Grupo Simec has a Zacks Rank #2. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 5.5% over the last 60 days. The stock has returned 119.8% over the last one year, outperforming the Zacks Steel - Producers sector, which has gained 74.3% over the same period.
Kumba Iron Ore Limited KIROY is involved in exploring for, extracting, marketing, shipping and selling iron ore in South Africa.
Kumba Iron Ore has a Zacks Rank #2. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 13.6% over the last 60 days. The stock has returned 392.9% over the last one year, outperforming the Zacks Mining - Iron sector, which has gained 145.5% over the same period.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report SOC QUIMICA MIN (SQM): Free Stock Analysis Report KUMBA IRON ORE (KIROY): Free Stock Analysis Report VALE SA (VALE): Free Stock Analysis Report BRASKEM SA (BAK): Free Stock Analysis Report GRUPO SIMEC SA (SIM): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research