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Market Volatility Persists: 5 Top Emerging Market Picks

Nalak Das
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The foreboding atmosphere of global stock market volatility which emanated in February, still looms at large. President Trump’s newly imposed tariff policies have made stock markets highly susceptible to an impending global trade war.

Markets remain highly unstable with rapid ascent being witnessed one week, followed by a sharp decline the very next week.  Investors remain sceptical about the imposition of tariffs despite the fact that fundamentals of the U.S. economy remain robust.

At this juncture, emerging market stocks with strong growth potential may become a new avenue for investors to cushion their portfolio. Strong global growth, low valuation of emerging market assets and structural reforms taken by various governments has transformed emerging market stocks into attractive bets.

Emerging Markets to Experience Healthy Growth in 2018

In January 2018, the World Bank projected that the global economy is set to expand by 3.1% in 2018. However, emerging economies will grow around 4.5% in 2018 and an average of 4.7% in 2019 and 2020. Per World Bank, East-Asia and Asia-Pacific region will be the fastest-growing regions globally.

During the same month, the IMF projected that the global economy will grow at 3.9% in both 2018 and 2019. However, emerging markets of Asia will grow at around 6.5% over 2018–2019. Emerging markets of Europe will expand by more than 5% while Latin America will grow at 1.9% and 2.6% in 2018 and 2019, respectively.

Emerging markets are characterized by growing middle class population, the explosive rise of e-commerce and the expansion of financial services which are still underpenetrated. Consequently, emerging markets are well positioned to attract global investors’ attention by offering high returns.  

Low Valuation of Emerging Market Stocks

Over the last two years, emerging market stocks have been underperforming their developed market peers due to weak commodity prices and higher dollar prices. However, things changed in the last year as emerging markets provided a decent return to investors. The MSCI Emerging Markets Index (EFS) climbed 37% in 2017 outpacing the benchmark S&P 500’s growth of 19.7%.

Despite last year’s bull-run, emerging markets looks pretty attractive across various metrics. In January 2018, Kate Moore, chief equity strategist at BlackRock estimated that emerging stocks are trading at 12.3x 2018 P/E. This figure is 26% cheaper than U.S. stocks. Yardeni Research estimated that emerging stocks are trading at 12.5x 2018 P/E, nearly 50% discount to U.S. stocks trading at 18.5x 2018 projected earnings.

Year to date, the MSCI Emerging Markets Index is up 2.06% while the S&P 500 is down 0.56%. Consequently, this situation opens up significant capital gains opportunities for global investors.

Our Top Picks

Of late, emerging markets have achieved a significant position in the global investment space. To boost growth, several emerging economies have been resorting to policy easing via interest rate cuts or offering some accommodative measures.

Among the set, China, India, Turkey, Russia and Indonesia deserve a mention. Many of the emerging economies are enacting pro-growth reforms as well. So, higher growth rates should offer investors both capital gains and solid yields.

In 2018, emerging markets may emerge as hidden gems in the global investment arena. We have narrowed down our choices to five stocks each sporting a Zacks Rank #1 (Strong Buy) and a strong growth potential. You can see the complete list of today's Zacks #1 Rank stocks here.

The chart below depicts price performance of our five picks in last three months.

Autohome Inc. ATHM based in Beijing, China, the company offers an online destination for automobile consumers primarily in the People's Republic of China.

Autohome has expected earnings growth of 43% for current year. The Zacks Consensus Estimate for the current year has improved by 18.2% over the last 60 days.

SK Telecom Co. Ltd. SKM based in Seoul, South Korea, the company is the world's first commercial CDMA (Code Division Multiple Access) digital cellular service provider.

SK Telecom has expected earnings growth of 9.3% for current year. The Zacks Consensus Estimate for the current year has improved by 20.1% over the last 60 days.

TIM Participacoes S.A. TSU based in Rio de Janeiro, Brazil, the company is the sole wireless service provider throughout Brazil.

TIM Participacoes has expected earnings growth of 22.5% for current year. The Zacks Consensus Estimate for the current year has improved by 8.9% over the last 60 days.

Grupo Aeroportuario del Centro Norte, S. A. B. de C. V. OMAB based in San Pedro Garza García, Mexico, the company operates and manages 13 international airports in the north and central regions of Mexico.

Grupo Aeroportuario has expected earnings growth of 18.7% for current year. The Zacks Consensus Estimate for the current year has improved by 17.1% over the last 60 days.

Vale S.A. VALE based in Rio de Janeiro, Brazil, is a mining company engaged in the mining of iron ore and pellets, nickel, manganese and ferro-alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash.

Vale has expected earnings growth of 8.9% for current year. The Zacks Consensus Estimate for the current year has improved by 30.1% over the last 60 days.

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Grupo Aeroportuario del Centro Norte S.A.B. de C.V. (OMAB) : Free Stock Analysis Report
 
Autohome Inc. (ATHM) : Free Stock Analysis Report
 
VALE S.A. (VALE) : Free Stock Analysis Report
 
SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
 
TIM Participacoes S.A. (TSU) : Free Stock Analysis Report
 
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