Emerging Markets Investing

In our constant search for growth investment opportunities, sometimes it makes sense to look outside our borders. The U.S. economy is still growing, but not at the same pace as emerging markets.

Emerging markets investing is the opportunity to invest in the world’s fastest-growing countries and, thus, many of the world’s fastest-growing companies.

When emerging markets investing really began to heat up after the turn of the 21st century, much attention was focused on the so-called BRIC countries, which were Brazil, Russia, India and China. Those four countries combined enormous populations with stable governments and national economies on the verge of major expansion.

Out of that group, China has certainly delivered on its promise. China enjoyed more than a decade of double-digit economic growth based on cheap labor and massive exports, and its massive population of industrious people, directed by its powerful central government, has created a booming middle class eager to achieve the prosperity of developed nations. The country has made huge investments in infrastructure and looks to be ready to deliver GDP growth of 7% or more for the foreseeable future.

The other BRIC countries have each had their problems. Brazil’s economy is vulnerable to inflation any time economic growth revs up. Russia has squandered its potential with expansionist policies aimed at rebuilding at least a part of the old Soviet territory. And India has suffered from a political system that is chronically susceptible to gridlock.

Of these three countries, India appears to have the highest potential for the kind of growth-from-a-low base that powers big stock returns. The young administration of Narendra Modi, a leader with decidedly pro-business views and a working majority in both houses of India’s parliament, is beginning the process of infrastructure improvements that have proven successful at stimulating growth in other countries. And we’re seeing the beginning of a loosening of stifling government controls that hamper entrepreneurism.

We’re also watching other countries for signs that growth is taking hold, including South Korea, Mexico, Indonesia, Turkey, Saudi Arabia and South Africa. It’s an exciting time to be an emerging markets investor!

The advantage of emerging markets investing is that it allows you to invest in countries with double-digit GDP growth—or close to it. At a time when America’s economy is expanding in the low single digits, Japan’s economy is struggling and much of Europe is still buried under a mountain of sovereign debt, emerging markets hold more appeal than ever. The potential rewards of emerging markets investing have rarely been more enticing. But with those potential rewards comes a considerable amount of risk.

Any kind of growth investing has inherent risk. When you invest in an emerging market, which is essentially a euphemism for “underdeveloped” market, you take on even greater risk. There are a lot more unknowns when investing in a country that is still developing. And the less you know about a company, the more risk you take on when you invest in it. One way to curb the risk is to invest in American Depository Receipts (ADRs) traded on U.S. exchanges, which required the stocks to meet strict U.S. requirements.

For some investors, emerging markets investing is simply too risky. But for many, the potential for massive rewards is worth the extra risk. If you’re part of the latter group, then you should consider subscribing to our Cabot Emerging Markets Investor. In this advisory, analyst Paul Goodwin looks for promising companies benefiting from the rapid growth of emerging market economies. Many of the companies Paul examines are headquartered in emerging markets, though some are American or European companies that derive a large part of their growth from sales in emerging markets. All of Paul’s emerging-market recommendations trade on a U.S. exchange.

To help reduce the risk that comes with emerging markets investing, Paul focuses solely on companies with healthy balance sheets, solid growth and whose stocks are in the midst of a strong uptrend. Also, in the event a loss develops, it is limited to no more than 20% at the close of any trading day. Many emerging market countries are experiencing growth that will persist for years to come. Emerging markets investing is a way to profit from that trend. The Cabot Emerging Markets Investor attempts to deliver you those huge profits while minimizing risk.

Analysts Center

Our analysts regularly share content from their premium advisories. See a sampling of our analysts’ unique takes on current market conditions and how they impact a wide range of investments.

Investing in Emerging Markets: Allocation, Buying, Selling

Here's a quick review on how to invest in emerging markets the Cabot way.»

Investing In the BRIC Countries

The Report is perfect for growth investors seeking international diversification.»

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By J. Royden Ward on November 23, 2015

As Warren Buffett said, "Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Two stocks that I think Mr. Buffett should own are Johnson Controls and Whirlpool. Read More >