What to watch

The case for investing in emerging markets

U.S. vacationers aren’t the only ones that should broaden their horizons and go overseas. American investors should think about it, too.

With stocks near record highs and up 9% in 2017, it’s easy for Main Street investors to stick to a U.S.-centric portfolio. But that strategy means they won’t be able to take advantage of strength in shares trading in developing countries. The iShares MSCI Emerging Markets Index ETF (EEM), which invests in places such as China, Korea and South Africa, has broken out to new highs and is at its highest level since May 2015. The ETF is up more than 22% this year, more than double the return of the U.S. stock market.

Factors driving the gains: a rebound in the global economy, a sense that years of better U.S. stock performance will give way to stronger gains from abroad, cheaper valuations in developing markets and continued hints from the U.S. central bank that it won’t too hastily pull back on stimulus that is beneficial to emerging markets. Barring a global crisis, emerging markets are likely to fare well. “It’s a market we want to have exposure to,” says Todd Sohn, analyst at Strategas Research Partners.

Adds Joe Quinlan, chief market strategist at U.S. Trust: “U.S. investors should think long term and recognize future growth, consumption and corporate earnings will emanate primarily from the likes of China, India and Mexico and others over the next decade.”