A Look At The Next Two Emerging Markets Set To Outperform (EEM, VWO, THD, EPHE, EEV)
Rudy Martin: Many of the best emerging-value dividend plays today are traded on the U.S. exchanges. That’s not just my opinion — my proprietary indicators are clearly telling me that’s the case.
In my latest scan of nearly 300 emerging-market stocks (NYSEArca:EEM) — the ones I’m tracking most closely in both the United States and on overseas exchanges — what I’m seeing across the board is that the best way to get exposure to emerging economies (NYSEArca:VWO) and their accompanying growth stories is to start right here at home.
Of course, that’s no surprise to my Emerging Market Winners subscribers, as they’ve been investing in the world’s hottest economies — many of which are growing up to five times faster than ours — from the safety, ease and familiarity of buying and selling right on the NYSE, AMEX and Nasdaq.
But just because a company is located in, or has a great deal of exposure to, fast-growing emerging markets, that doesn’t automatically make it an ideal candidate for your trading account.
Just like with any investment decision you make, it’s important to look at how the sector’s doing, how the company is performing relative to its competition, what the fundamentals look like and whether the chart is technically sound.
So today, let’s take a look at the hottest emerging-market sectors in which to invest … and then I’ll give you a peek at the two countries I’m targeting next to generate gains from right here at home.
Which Emerging Sectors Will Fizzle, And Which Will Sizzle, in 2012?
Before I recommend an emerging-market-based company, I check it against my momentum model — which looks at a variety of fundamental and technical numbers — to come up with an overall investment attraction score. Typically, I find this to be consistent with where the market is heading.
Here’s a look at some of the initial 2012 sector observations from my model that looks at stocks around the globe with emerging-market exposure.
These model ratings call for a focus on financials (with a 79% buy signal), while the model dislikes the utilities sector (10%).
As of this writing, my subscribers are up 12%, 15% and 18% in three emerging-market financial plays, just since putting them on the table in October. So, as far as I can tell, the model is working the way it should be.
This means that when it comes to utility stocks, unless something changes, which isn’t looking likely in the short- to intermediate-term, I probably won’t be recommending them in 2012.
So, which sector am I focusing on next?
Take a look at tech, with a 44% buy signal. This space is incredibly intriguing, as more countries come online and the “gadget fever” that is rampant in the United States starts to catch on overseas. In fact, I recently gave my subscribers the best-possible name to benefit from emerging growth in this space. And, as we discussed earlier, it’s a U.S.-based company!
I won’t give away that name today, but next let’s take a look at two of the specific countries where you may want to start keeping an eye on those sectors to watch.
Where Can You Find the Next Big Winners?
We already know that the U.S. markets are where we want to make the trades. But which countries, exactly, are going to be setting the world on fire?
The reality is, most emerging-market investors lost money last year. The average emerging market (of the ones I track) was down 14% in the last 12 months. Fortunately, 2011 was also not a year of global slowdown, so there are pockets of opportunity in growing markets.
In hindsight, the three best markets to have been in over the last year were Panama (up 30%), Indonesia (up 24%) and Thailand (up 20%).
The best region was Asia/Africa where, in addition to Indonesia and Thailand, the other positive markets were the Philippines (up 13%), Malaysia (up 6%) and South Africa (up 11%).
Going forward, however, two of these names are looking to be outperformers next year:
1. The Philippines
This country is currently rated one or two notches below investment grade and is hoping to follow in the footsteps of Indonesia, which got an upgrade last December.
Fundamentally the cost of capital is declining, with significant improvement in its access to liquidity. And things are getting better, with a significant drop in deficit spending and the structural rise of overseas labor remittances that now keeps the current account in a healthy 4% of GDP surplus.
Since the Asian crisis 15 years ago, Thailand has always maintained more-responsible fiscal policies, moderate private leverage conditions and external surpluses. Thai credit growth is now in the high teens and boosting domestic growth expectations. Looks like pent up demand will propel Thailand to higher spending and even more lending in 2012.
I’ll be looking for quality picks in these markets in the coming weeks, and now that you know the sectors to follow, you can too!
ETFDN Related Tickers: iShares MSCI Emerging Markets Index (NYSEArca:EEM), Vanguard MSCI Emerging Markets ETF (NYSEArca:VWO), iShares MSCI Thailand Index (NYSEArca:THD), iShares MSCI Philippines Invest (NYSEArca:EPHE), ProShares UltraShort MSCI ETF (NYSEArca:EEV).
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