Emerging Market Stocks to Invest in
Emerging market stocks are based in countries that are growing their economies. Their goal is to compete with larger, more developed nations. Often emerging market countries depend on agriculture or commodities as their main export. Therefore, their economies and stocks can swing wildly between growth and decline. So, emerging market stocks typically swing wildly.
Emerging market economies are trying to change from less developed to an economy integrated with the global economy. As well as a higher standard of living for their citizens. These countries become developed economies by increasing the reliability of debt and stock markets. This also includes increased trade with other countries and a strong banking system.
Some of the fastest-growing emerging market countries include Brazil, Russia, India and China. Emerging market investors refer to this group as the BRIC countries. China is one of the largest economies in the world. However, it is considered an emerging market.
In addition, the International Monetary Fund considers massive oil-exporting countries like Saudi Arabia, Iran and United Arab Emirates to be emerging market countries. Emerging market stocks can often swing wildly. And because of this, they can be your portfolio’s best friend or worst enemy. So, let’s dig in and do a little homework.
Emerging Market Stocks to Buy
One of the main reason investors put emerging market stocks into their portfolios is to add diversification. The economies of emerging markets haven’t yet fully integrated with the global economy. This is why they tend to go in different directions.
When that happens, emerging market stocks also tend to go in different directions. A portfolio of stocks going in different directions can help lessen swings in the overall portfolio. Thus, the portfolio is diversified. Of course, diversified investors hope the general trend of their portfolio is upward.
Active investors may look to take advantage of swings in emerging market stocks. These investors care less about diversification and more about investment return. For instance, Brazil is an agricultural economy.
In 2021, there was a drought in the spring and an early frost in the fall. This hurt the country’s exports. The Brazil Stock Exchange fell dramatically when that happened. Active investors could have profited as stocks recovered through April of 2022.
Best Emerging Market Stocks
If you fall into the active investor and look for emerging market stocks that are down, consider these stocks for your account.
- StoneCo (Nasdaq: STNE): StoneCo is a fintech company that manages payment options for in-store, online and e-commerce in Brazil. The stock is down significantly along with many Brazilian stocks. If the Brazilian economy can bounce back in 2022, StoneCo stock could be a profitable stock to own. It may comfort readers that Warren Buffett’s company Berkshire Hathaway (NYSE: BRK), is a major shareholder of StoneCo stock.
- Alibaba (NYSE: BABA): Readers may know Alibaba as the Chinese version of Amazon.com. The company operates popular Chinese e-commerce websites Taobao and Tmall. In addition, Alibaba has a cloud computing business, digital media and entertainment business. And it holds investments in many other Chinese companies. Alibaba stock is also down significantly due to pressure from the Chinese government. To clarify, the government is imposing to allow more flexibility to merchants selling goods on its e-commerce platforms. If the Chinese economy continues to grow, so could the stock.
Emerging market stocks can add growth and diversification to your portfolio. However, there are risks that every investor should consider before jumping in.
One risk to consider is political risk. Many emerging market countries have political systems that may have unstable governments. If this is the case, political unrest could damage your stocks quickly. For instance, since Russia invaded Ukraine, Russian stocks have taken a beating.
Economic risk is another risk to consider before investing. Most emerging market countries have not yet fully integrated with the global economy. Because of this, they may have trouble exporting goods. On the same token, they may not have the ability to import goods that the economy needs. In either case, this may cause high inflation or even deflation. Lengthy bouts of inflation can be devastating to stocks.
Most emerging markets have their currency. Because of this, there is a risk. To elaborate, this risk highlights that the money in an emerging market country becomes dramatically higher or lower than another country’s money. If an emerging market country’s currency swings wildly, it could make imports or exports significantly tricky.
Emerging Market Mutual Funds
If all of this seems like it is too much, consider putting your money into an emerging market mutual fund. Like other mutual funds, investors pool their money together in an emerging market mutual fund. Professional investors manage the fund.
The emerging-market mutual funds will charge a fee for their services. In return, investors get hands-off exposure to emerging market stocks.
About BJ Cook
BJ Cook is a long-time stock nerd. He has held several roles in the equity research world and earned the right to use the CFA designation in 2014. When he’s not writing for Investment U, you can find him searching for new investment ideas. Outside the investment community, BJ is a die-hard Cubs fan.