Hey, global investors, it's time to shop around.
If you started eyeing emerging-market stocks relatively recently, you've probably focused lustily on the so-called BRICs -- that fabulous foursome of Brazil, Russia, India and China. Stocks in these countries have outperformed U.S. stocks for several years, leading a lot of everyday investors overseas.
But these days, a laser focus on the BRICs means you're overlooking great growth in other emerging economies, including Turkey, Indonesia, Mexico, Eastern and Central Europe, and Qatar. Yet that's where you'll find the same opportunities that led us overseas: sustainable growth at much cheaper prices than in the U.S. or, these days, in the BRICs.
With the U.S. market still playing catch-up and the developed world stalled, these are places you'll want to look if you hope to beat Wall Street.
Yes, this makes investing a little trickier. Information on new companies in young economies isn't as readily available to do-it-yourself investors as data on U.S. blue chips.
"But," he adds, "when you find them, they can present wonderful opportunities."
So how do you find the best investments? A growing number of promising non-BRIC emerging-market stocks can be found on U.S. exchanges. But for broader and safer exposure, you can look to exchange-traded funds and mutual funds that cover these countries.
I'll get to the names in a moment. But first, here's a review of the reasons to invest in emerging markets and branch out beyond the BRICS.
Reason No. 1: Sustainable and superior growth
From 2005 through 2009, the average U.S. large-blend mutual fund gained only 0.5% a year, according to Morningstar. Diversified emerging-markets funds advanced 13.2% a year, on average. The reason is simple: Emerging economies are growing much faster than those in the developed world.In large part because developed countries have bought so much from emerging economies over the past several decades, in a kind of emerging-market Marshall Plan, those overseas economies can now stand on their own feet. They have their own growth paths and their own emerging middle classes hungry for cars, handbags and Kentucky Fried Chicken.
Last year, for the first time, emerging-market consumption surpassed consumption in the U.S., says JPMorgan Chase analyst Bruce Kasman. And over the past four years, emerging markets contributed more to global growth than all developed markets.
Kasman predicts emerging-market economies will grow 5.9% this year, compared with 2.3% growth for industrialized countries.
Reason No. 2: The 'modern safe haven'
It sounds strange to say this about a sector that has hit investors with the Asian currency collapse of the late 1990s and the outright takeover of private companies in Russia and Venezuela. But in many ways, emerging markets are now the "modern safe haven," says Jerome Booth, the head of research for Ashmore Investment Management, which specializes in emerging-market investing.These nations have "decoupled" from the developed world, meaning they now show strong domestic growth and chart their own economic paths. Their regulators kept their banks from wading into the credit mess the way developed-world banks did, and they didn't experience housing bubbles. So while many economists now worry that the U.S. could slip into a double-dip recession as another wave of mortgage defaults hits this year, the emerging-world economies appear all but immune.
Indeed, while recession struck the developed world over the past two years, emerging-market economies kept on growing. "If the U.S. goes into depression, you want to be in emerging markets that have strong domestic growth," Booth says.
Their governments have also been more responsible with debt. While developed-world countries such as Greece, Spain, Portugal, Italy and Ireland are now skating close to the edge of bankruptcy, most emerging-market countries have comfortably low ratios of national debt to gross domestic product. Impressively, they're still stable by this measure, even though they did more than developed countries to combat any slowdown.
Continued: Currencies are rising