On the road to new-found wealth with emerging market stocks
Emerging markets are still growing at a brisk pace, and this U.S. advisory finds experts who take different routes with stocks and ETFs.
Honk if you’re invested in emerging markets.
On second thought, don’t. That would mean you’re reading this on a handheld device while driving.
Still, horn honking is a symbol of one stock that is on the road to bigger and better things in one of the world’s fastest-growing markets.
“Traffic in India’s capital city is intense,” says Mr. Andrew Leckey in his “Wall Street Report” in Bull & Bear Financial Report.
“Since horn honking is considered a safety measure for passing (trucks have signs on their bumpers that read ‘please honk’), the blaring noise is overwhelming. This is the sound of an emerging market economy.”
The city, of course, is New Delhi and the stock is Tata Motors Ltd. (NYSE-TTM). It’s one of several stocks Mr. Leckey has gleaned in his discussion of emerging markets with a pair of U.S. experts.
Emerging nations are still growing faster than the West. But individual stocks aren’t the only way to tap into that growth, he adds. You can spread the risk a little thinner with exchange traded funds, or ETFs. Or with familiar multinationals that make more and more money overseas.
First, we return to the crowded streets of New Delhi.
The people’s car
All that honking is the sound of an emerging market economy, Mr. Lecky writes, “and while it may not always turn in 9 per cent gross domestic product growth, it seems destined to put up at least 5 per cent annually thanks to demographics and an improved living standard.”
Tata, founded in 1945, is the nation’s largest automaker. It has placed millions of cars and trucks on India’s roads. In 2008 it purchased Jaguar-Land Rover from Ford and launched its own Tata Nano, the “people’s car.”
It’s American Depositary Receipt (ADR) shares rose 72 per cent in 2010 after accelerating to the tune of 279 per cent in 2009. From their November high of $37, the shares have slid back to $25.19. The $0.32 dividend yields 1.3 per cent.
Arjun Jayarma, manager of Causeway Emerging Markets Investor Fund (CEMVX) holds the shares of Tata because India’s middle income group “is getting wealthier and buying cars.’
In Russia, on the other hand, worry about risk has undercut the price of stocks even though companies have robust earnings, he says.
In short, while the opportunities for wealth are there, it’s important to sort through different stocks in different nations.
Spreading the wealth
Emerging markets funds in the U.S. were up by 17 per cent across the board last year. But in 2010, Mr. Jaramayan notes, smaller market nations like Indonesia, Thailand and Chile grew faster than the famous BRIC (Brazil, Russia, India and China).
His fund spreads the wealth around, although his top holdings include three “BRIC” stocks that trade as ADRs in New York.
Russian risk notwithstanding, one is natural gas behemoth OAO Gazprom (OTC-OGZPY), the largest company in Russia. It trades at $28.40, not far off its 52-week high, and yields 0.8 per cent on its $0.24 dividend.
China Mobile Ltd. (NYSE-CHL) has the lion’s share of mobile services in China, making it the wealthiest cell phone company in the world. Its shares trade at $49.45 with a yield of 3.7 per cent on its $1.83 dividend.
Although it endured a long strike at Inco, Brazilian mining giant Vale SA (NYSE-VALE) has plenty of producing properties around the world. It clearly benefits from rising commodity prices. The shares trade at $34.70 and yield 1.9 per cent on the $0.66 dividend.
Trading partners and safety nets
You don’t have to buy individual foreign stocks to share the wealth in emerging markets, says another analyst, Mr. Gary Gordon of Pacific Park Financial in Aliso Viejo, California.
For instance, you may want to invest in China indirectly, by putting your money with its trading partners. “You want the trading partners with China that are not necessarily heavy in basic materials, but technology.”
This is where an ETF covers the ground. He recommends iShares MSCI All Country Asia ex Japan (NASDQ-AAXJ), trading at $62.38.
“Investors shouldn’t take the risk of selecting individual countries whose events they won’t be able to follow closely,” Mr. Gordon adds.
But you can feel pretty secure investing in the huge Chinese market with a broad-based ETF. Global X China Consumer ETF (AMEX-CHIQ) covers consumer goods and services and trades at $17.50.
And don’t forget Latin America, he says. You can cover its growing markets with iShares S&P Latin America 40 Index (AMEX-ILF), which is trading at $51.25.
Mr. Gordon has one more safety net for investors. Take big western multinationals that have a “significant toehold” in emerging markets. They don’t have to be American, either.
Big British household products firm Unilever SA (NYSE-UL) is his first choice. It trades at $29.52 and yields 3.9 per cent on its $2.40 dividend.
He does have two American stocks. Yum! Brands Inc. (NYSE-YUM), which houses KFC, Pizza Hut, Taco Bell and others, is trading at $48.84 and yielding 2 per cent on its $1.00 dividend. PepsiCo (NYSE-PEP) trades at $63.82 and yields 3 per cent on the $1.92 dividend.
There are lots of different ways to travel around the world. Happily, there are almost as many ways to set out in search of international profits.
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