As Americans, we often get so caught up in our own domestic issues that we ignore what’s going on in the world around us. That’s a rather limited worldview—and in investing, it can be a costly one.
Emerging markets stocks are among the fastest-growing investments in the global marketplace. The nature of emerging markets is what makes emerging markets stocks so enticing.
Emerging markets are economies whose gross domestic product (GDP) is growing at a much faster rate than more developed markets such as the U.S., Germany and Japan. Consequently, emerging markets stocks often grow at a faster clip than the average stock in a more mature market.
Brazil, Russia, India and China—the so-called “BRIC” nations—garner the most attention. But good emerging markets stocks can be found in other, less populous corners of the globe, including South Korea, Mexico, Turkey, Saudi Arabia and South Africa. The options are numerous for investors willing to explore outside their American bubble.
There are myriad reasons to do so. Investing in emerging markets stocks allows you to invest in countries with double-digit GDP growth—or close to it. At a time when America’s economy is expanding in the low single digits, Japan’s economy is struggling and much of Europe is still buried under a mountain of sovereign debt, emerging markets hold more appeal than ever.
Of course, all emerging markets investing comes with its fair share of risk. The term emerging is really a euphemism for “underdeveloped.”
Many emerging markets are plagued by political instability, inferior infrastructure, volatile currencies and limited equity opportunities. In addition, some of the largest companies in emerging markets are either state-run or private. There are simply more unknowns when investing in a market that is still developing. And the less you know about a company, the more risk you take on when you invest in it.
One way to curb the risk is to invest in American Depository Receipts (ADRs) traded on U.S. exchanges, which subjects the stocks to strict U.S. requirements.
For some, emerging markets stocks are simply too risky. But for many, the potential for massive rewards is worth the extra risk.
If you’re part of the latter group, then you should consider subscribing to our Cabot Emerging Markets Investor. In this advisory, analyst Paul Goodwin looks for promising companies benefiting from the rapid growth of emerging market economies. Many of the companies Paul examines are headquartered in emerging markets, though some are American or European companies that derive a large part of their growth from sales in emerging markets. All of Paul’s emerging-market recommendations trade on a U.S. exchange.
To help reduce the risk that comes with investing in emerging markets stocks, Paul focuses solely on companies with healthy balance sheets, solid growth and shares that are in the midst of a strong uptrend. Also, in the event a loss develops, it is limited to no more than 20% at the close of any trading day.
Many emerging market countries are experiencing growth that will persist for years to come. Investing in emerging markets stocks is a way to profit from that trend. The Cabot Emerging Markets Investor attempts to deliver you those huge profits while minimizing risk.
Each write-up features commentary on the picks from one or more of our expert stock market analysts, as well as company details and a stock chart.