While emerging markets are frequently volatile, and the recent headlines they’ve generated lately have often been negative, there’s still a lot going for the space — especially for long-term investors. The potential for steady income, access to companies with huge growth potential, and great prices.
At Morningstar UK, Annalisa Esposito outlines the main reasons why investors should consider allocating to emerging markets.
Growing Dividends
Believe it or not, many companies in emerging and developing nations offer good income for investors who do their research. Not only do many companies currently pay good dividends, but many also have the potential to either grow their dividend or start paying one soon.
Appealing Valuations
When investor sentiment has been fixated on COVID-19 and trade tensions between the U.S. and China, investors who can cut through the noise can often find companies with long-term potential trading at attractive valuations.
Many stocks are trading at or near the low end of their historic range after the recent market falls. Internet and e-commerce companies from markets like Brazil, India, and Indonesia have seen even steeper valuation compressions, trading well below their pre-COVID levels.
But some long-term investors see this as a potential buying opportunity. Paul Greer, a money manager at Fidelity International in London, told Bloomberg: “While fundamentals remain very challenged, the valuations on offer, coupled with a more favorable technical picture, have meaningfully altered the near-term risk-reward asymmetry.”
“Increasingly these companies are beginning to look like value plays,” said EMQQ Global founder and CIO Kevin T. Carter. “Many of our companies have increased their buybacks and special dividends to record levels. They see the value when they run their internal models. We think investors will as well.”
Access to Industry Leaders
Many companies in developing economies are already leaders in their field. Giants like Tencent, Alibaba, and MercadoLibre already face little to no competition from elsewhere in the world. The data-driven technology space has benefitted from the coronavirus pandemic, while online entertainment, gaming, and messaging platforms have also benefited from a recent surge in demand.
Investors looking to take advantage of these valuations in the emerging markets space may want to consider EMQQ Global’s Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ) and Next Frontier Internet & Ecommerce ETF (FMQQ), which are designed to provide exposure to the internet and e-commerce sectors within the developing world.
By focusing on the internet and e-commerce in emerging markets, EMQQ looks to capture the growth and innovation happening in some of the largest and fastest-growing populations in the world. More than 60% of EMQQ’s assets are weighted toward China.
FMQQ, meanwhile, seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the Next Frontier Internet and Ecommerce Index (FMQQetf.com). While it has the same investment philosophy as EMQQ, FMQQ has no China-based holdings. Securities must meet a minimum of a $300 million market cap and pass a liquidity screen that requires a $1 million average daily turnover.
For more news, information, and strategy, visit our Emerging Markets Channel.