3 Reasons to Ride Emerging Market Stocks Higher

Video Transcript

Hi, this is Rudy Martin for Uncommon Wisdom Daily.

Most investors point to China’s slowing economic growth and Europe’s continued struggles, and conclude that global GDP growth will decline in 2012. That may be true, but I think that now may actually be the best time to invest in emerging markets, especially if other investors are running away.

One reason for my optimism is that despite a slowdown in growth, emerging-market economies are still expanding at a much-faster rate than the United States or Europe. Everyone knows about the discrepancy in GDP — China’s economy is expected to grow at 7.5%, while the U.S. will be lucky to expand at a third of that rate.

But I want to look at one particular industry that I feel represents the growing divide between the developed and emerging markets — the auto industry. J.D. Power & Associates predicts just a modest improvement in U.S. auto sales this year. But Russia’s car market is likely to expand 6%, while Fitch Ratings forecasts a 4% increase in Indian sales. And Ford Motor just announced that its monthly sales in China were up 28% over the same period last year. Ford just opened its fourth assembly plant in China, and it’s planning three more by the end of next year to meet the growing demand.

I also believe that emerging markets are going to benefit from shifts in the currency markets. Again, let’s use the auto industry to illustrate the point. Japan, home to some of the world’s largest carmakers, has been doing everything it can to reduce the value of the yen, and help its exporters remain competitive. The Bank of Japan has directly intervened in the currency markets twice. And many of the country’s automakers are moving a portion of their production overseas. Nissan and Honda now produce 75% of their vehicles outside of Japan, and even Toyota has shifted 60% of its total assemblies to other countries.

The biggest beneficiaries of this shift are Latin American nations. Mexico produced a record number of passenger vehicles and light trucks last year, and is now the world’s eighth-largest manufacturer. And Brazil is set to become the world’s fifth-largest manufacturer.

The third reason I’m so optimistic about the emerging markets is because I think the equities there are cheap. The 12-month forward Price-to-Earnings ratio on the MSCI Emerging Markets Index is at 10.8, which is 15% below its long-term average, and 15% below the P/E ratio on the World Index.

As more and more investors catch on to how attractive the emerging markets are right now, you’ll see a dramatic increase in both capital market investment, and foreign direct investment. And if you get on board now, you can ride to big profits.

I’m Rudy Martin for Uncommon Wisdom Daily. Thanks for watching.

Rudy Martin, editor of Global Trend Trader, is the President at Acamar Global Investments, with 25 years of experience serving institutions and high net-worth individuals.

Rudy started his investment career in 1983, co-managing a $2 billion private investment portfolio for Transamerica. Later, he went on to Wall Street as an equity analyst for Dean Witter and traveled globally, serving major institutional equity investors. In 1995, he joined Fidelity Investments as a Senior Investment Analyst for a series of multibillion-dollar fund portfolios.

During his career, Rudy has received awards for institutional investing and is widely quoted in the financial press and on television about topics related to global investing and emerging markets. For more information on Global Trend Trader click here.