Opportunities in Emerging Markets
The allure of emerging market stocks for investors lies in the promise of fast-growing economies and global expansion prospects. With emerging economies anticipated to grow over 4% this year, a stark contrast to the tepid 2% growth projected for developed economies, the appeal for portfolio diversification in emerging markets is undeniable.
One critical factor to consider is the impact of foreign exchange rate fluctuations on investment returns. A potential weakening of the U.S. dollar (USD) typically favors emerging market exchange-traded stocks, making the current landscape, with a slightly weaker dollar and potential Federal Reserve rate cuts, particularly enticing for investors seeking growth.
Alibaba (BABA): China’s Digital Powerhouse
First in line among the emerging market stocks worth considering is Alibaba (NYSE:BABA), the Chinese e-commerce titan that reigns supreme in China’s digital economy, brimming with growth opportunities.
Alibaba’s fourth-quarter fiscal 2024 results revealed a 7% year-over-year rise in revenue, although adjusted diluted earnings per share (EPS) slid 5% due to increased operational expenses and macroeconomic challenges. Despite these hurdles, Alibaba recompensed its shareholders through stock repurchases and dividends.
Going beyond capitalizing on China’s growth and global outreach, Alibaba is focusing on advancing its AI capabilities with collaborations such as the partnership with luxury retailer LVMH Moët Hennessy. Additionally, China’s proposed regulations to fortify cross-border e-commerce offer a promising growth trajectory.
While BABA stock has seen a modest 1% gain year-to-date (YTD), it boasts a 1.3% dividend yield and trades at appealing valuations of 9.5 times forward earnings and 1.5 times sales. Analysts are eyeing a 35% upside potential, with a 12-month median price target of $106.
Infosys (INFY): Empowering Digital Solutions
Next in line on the list of prospective emerging market stocks is Infosys (NYSE:INFY), the India-based digital services and consulting leader providing a plethora of solutions including technology, outsourcing, and next-gen digital services.
Infosys reported flat quarterly revenue growth of $4.6 billion in its fourth-quarter and full-year 2024 results, with earnings per diluted share witnessing a 28.8% year-over-year increase. For fiscal 2025, Infosys expects cautious revenue growth of 1-3% in constant currency terms while actively enhancing its portfolio through strategic collaborations and acquisitions.
Noteworthy partnerships like Nihon Chouzai in Japan to bolster healthcare access and an AI-led enhancement of the Roland Garros tournament by teaming up with the French Tennis Federation underscore Infosys’ commitment to innovation.
Despite a nearly 3% decline in INFY stock this year, it offers an appealing 2.5% dividend yield and trades at 23.2 times forward earnings and 4 times sales. Analysts foresee a 12-month median price forecast of $19.3, indicating promising growth potential.
Unveiling the Opportunities with iShares MSCI Emerging Markets ex China ETF (EMXC)
Exploring Investment Potential
Delving into the world of emerging market stocks, the iShares MSCI Emerging Markets ex China ETF (NASDAQ:EMXC) emerges as a compelling option. This exchange-traded fund opens doors to large and mid-cap stocks from emerging markets, with a strategic exclusion of Chinese stocks. Its trading history dates back to August 2017.
Portfolio Insights
Source: shutterstock.com/Imagentle
EMXC boasts a diversified portfolio of 704 stocks, with the top ten holdings contributing close to 25% of its substantial $13.5 billion net assets. Sector allocations are thoughtfully spread across Information Technology (30%), Financials (24%), Materials (8%), Industrials (8%), and Consumer Discretionary (7%). Geographically, the fund allocates resources to leading markets such as India (26%), Taiwan (25%), South Korea (16%), Brazil (6%), and Saudi Arabia (5%).
Key Holdings and Performance
Noteworthy among EMXC’s top holdings are industry giants like Taiwan Semiconductor Manufacturing (NYSE:TSM), Samsung Electronics (OTCMKTS:SSNLF), Reliance Industries (OTCMKTS:RLNIY), SK Hynix (OTCMKTS:HXSCF), and Hon Hai Precision Industry (OTCMKTS:HNHPF).
Year-to-date, EMXC has exhibited a growth of nearly 5%. The fund’s attractive valuation metrics include trading at 16 times trailing earnings and 2 times book value. Furthermore, investors benefit from a low expense ratio of 0.25% and an enticing 2% dividend yield.
Closing Thoughts
As investors navigate the complexities of emerging markets, the iShares MSCI Emerging Markets ex China ETF (EMXC) stands out as a beacon of opportunity. With a diverse portfolio, robust performance, and appealing valuation, EMXC may offer a roadmap to potential returns in the dynamic world of global markets.
