Emerging markets the choice playground for savvy investors
The continued surge on Wall Street since Donald Trump’s surprise win in last month’s US presidential election begs the question of how much further it can go without triggering a major price correction.
More and more savvy investors have been scouting around for opportunities to diversify their portfolios. These investors, taking a longer-term view, are setting their sights on emerging markets, including Russia, Brazil and the Chinese mainland, where markets are trading at steep discounts in terms of average multiples to those of the United States.
Hong Kong investors should note that the currency risk is a major issue when investing in emerging markets at a time when the Hong Kong dollar’s appreciation in tandem with the greenback against most other currencies continues to gather steam. But, the cost of hedging against that risk seems small compared to the potential capital gains from investing in emerging markets.
Various factors that will have a fundamental impact on the economies of emerging markets have caught the attention of stock analysts and investors. The latest rise in the prices of a wide range of commodities, particularly oil, can help reverse the fortunes of Russia and Brazil. Meanwhile, recent trade and other key economic data suggest that the Chinese mainland’s economy is slowly regaining its footing.
Citing figures compiled by Leuthold Group — an independent market research firm — the New York Times reported that emerging market stocks are trading at an average price-to-earnings ratio that’s 53-percent lower than that of US stocks, compared to the historical average of about 20 percent. Hong Kong-listed H shares of mainland enterprises seem like even bigger bargains as they are all traded at varying discounts to their equivalent A shares listed on the Shanghai exchange.
Russia and, to a lesser extent, Brazil will benefit from higher oil prices arising from the decision of the Organization of Petroleum Exporting Countries (OPEC) to cut production. The price of benchmark crude has already risen to more than $50 per barrel and is widely expected to climb further to between $60 and $70 a barrel next year. The International Monetary Fund has predicted that Russia’s economy will grow by more than 1 percent in 2017 — up from an estimated 0.6 percent in 2016.
If you’re in the game, there’s no shortage of emerging market funds of various combinations for you to choose from.