As the Coronavirus Continues to Spread, It’s Becoming more Important to Own Emerging Market Blue Chips. Here’s Why.
The coronavirus epidemic is no doubt a health crisis.
At least 48 Chinese cities and four provinces are on partial or full lockdown.
Globally, there have been more than 75,000 cases and the death toll has risen above 2,000.
We all hope this virus is contained as soon as possible, and with complete international cooperation.
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All of this is, of course, impacting Asian and global stock markets and your portfolio. How long it will continue is anyone’s guess.
At this point, the China virus is not a financial crisis. Stalwarts like Johnson & Johnson (JNJ), IBM (IBM), and Coca-Cola (KO) are only off marginally, though emerging market blue chips have fallen considerably.
So what should you do?
To begin, avoid panic mode, by which I mean selling all your favorite stocks with great fundamentals and growth prospects.
Second, assess the cash situation in your portfolio. There is nothing like a stock market pullback to highlight why keeping some cash at hand is so important.
Cash is obviously very useful – especially if you want to buy something or invest in something. Cash gives you options, flexibility, mobility, and perhaps most importantly, peace of mind and patience.
And aren’t those the very characteristics of the world’s greatest investors and businessmen? What separates the true tycoons from the grey flannel suits?
For example, most investors think they can handle market volatility pretty well but the data shows they tend to be panic sellers. In essence, they are raising cash when they should be investing it.
If these investors had the foresight to have an ample cash position in hand, perhaps they wouldn’t panic during market downturns, but instead calmly scoop up blue-chip stock bargains that are on their buy list.
As Howard Marks, co-founder of Oaktree Capital, a global asset managing firm that specializes in alternative investment strategies, put it, “Investors face not one but two major risks: the risk of losing money and the risk of missing opportunities.”
While having traditional, U.S. blue-chip stocks like J&J, IBM, Microsoft (MSFT), Procter & Gamble (PG) in your portfolio may help protect your wealth, you need to think a bit more boldly to actually build wealth.
In contrast to traditional blue-chip stocks, high-quality emerging market blue chips, especially in Asia, are pulling back much more sharply in the wake of the coronavirus outbreak.
These emerging market blue chips present investors with great opportunities because they profit handsomely from the following advantages:
10 Advantages of Investing in Emerging Market Blue Chips
-Durable home government backing = key regulatory advantages
-Homecourt advantage and protected markets = higher profit margins
-Allied with global blue-chip companies and local tycoons = competitive edge
-Local inside knowledge in booming consumer markets = high growth
-Lower costs and economies of scale = bigger profits
-Early stages of the growth cycle, focused on fast-growing consumer markets = sustainable high growth
–Hidden off the radar screen of Wall Street = opportunity for a value entry point
-Great balance sheets, 3%-4% dividends, and same talented management as traditional blue chips
–These are substantial companies – the average market value of the top 30 emerging market blue chips is $27 billion.
-They operate in countries that avoid the high debt, high deficits and poor demographics that plague well-developed countries.
Now, quite frankly, investing in these emerging market blue chips is not for everyone. Yes, there is a bit more risk investing in the leading food company in Mexico than in Kraft Heinz (KHC), but the potential rewards are far greater.
Plus, these stocks can offer you the great balance sheets, talented management plus much higher growth and significant upside potential.
And many of these companies are already considered blue chips in their own countries, and are listed on U.S. stock exchanges; many of their names you already know—Alibaba (BABA), Tata Motors (TTM) and Taiwan Semiconductor (TSM), to name three.
Just imagine investing in Johnson & Johnson stock a century ago. This is how the new billionaire tycoons are building their fortunes at lightning speed while most investors keep falling behind.
And it’s why my Cabot Global Stocks Explorer advisory is always scouring the world for these emerging blue-chip opportunities. So far, we’ve been successful in finding them: the average return among my 12 stock recommendations is 56%!
If you want to invest alongside me, and learn what emerging market blue chips and other global stocks I’m currently recommending, click here.
*This post has been updated from an original version.