Playing Emerging Market Growth Domestically
By Kevin Grewal
According to projections from the International Monetary Fund (IMF), China, India and Brazil are expected to be the economic growth leaders of the year and it is possible to reap the benefits of this international growth domestically.
Over the last year, the MSCI Emerging Markets Index has gained more than 65% and prices in emerging stock markets like China have followed. In fact, China’s main stock market index trades at a price-to-earnings ratio of more than 30, nearly 50% higher than that of the S&P 500.
In addition to being cheaper, domestic stocks that are likely to benefit from international growth tend to be less volatile, have less risk and are more liquid than those of emerging markets. As these nations grow and develop, demand for energy, technology, and industrials will likely surge.
With this in mind, conglomerates like Siemens (SI) and General Electric (GE), who derive nearly one-third of their revenues from emerging markets, are good choices. Additionally, energy services companies who focus on oil-services and equipment like Schlumberger (SLB) and Halliburton (HAL) are worthy to look at. Lastly, technology which enables nations to gain a competitive advantage or, at the very least, compete with developed nations will be in demand. Some companies to watch here include Microsoft (MSFT) and Intel (INTC).
For a more diversified approach, take a look at the following ETFs:
- iShares Dow Jones US Industrials (IYJ), which allocates nearly 12% of its assets to GE. IYJ has gained nearly 56% over the past year and closed at $54.11 on Friday.
- iShares Dow Jones US Oil Equipment Index (IEZ), which boasts Schlumberger and Halliburton as its top holdings. IEZ is up about 78% over the past year and closed at $44.50 on Friday.
- Technology Select Sector SPDR (XLK), which boast Microsoft, Intel and Apple (AAPL) as top holdings. XLK is up nearly 54% over the last year and closed at $21.82 on Friday.
When investing in equities it is equally important to consider the inherent risks involved. To help mitigate these risks, it is important to implement an exit strategy which triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity.
According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: IYJ at $52.66; IEZ at $42.60; XLK at $21.34. These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.