North American stock markets have been having a tough go of it lately. The situation has been far worse for emerging markets. But when it comes to investing, chaos can also breed opportunity.
Rising U.S interest rates and a strengthening greenback have hurt emerging economies with a lot of foreign debt. Economic meltdowns in Turkey and Argentina haven’t helped.
“I think this is when you start to leg into positions in emerging markets equities”, Thomas George, President of Grizzle told Yahoo Finance Canada. George says emerging markets can represent a sizeable chunk of a young investors portfolio.
“I personally think having an emerging markets weighting anywhere between 20 to 35 per cent is very realistic,” says George. “Growth is what millennial investors have to seek and emerging markets is where that will come from.”
Considering the wild gyrations, emerging markets definitely aren’t for the faint of heart. Investing in the regions comes with huge political risk. George suggests boomers cut their exposure in half, compared to millennials.
Investors with access to foreign exchanges can pick individual stocks, some trade on U.S. exchanges. There are also a number of ETFs Canadians can buy on North American exchanges.
“In the past it was very expensive to invest in this asset class, but that’s no longer the case, Dan Bortolotti, Associate Portfolio Manager at PWL Capital told Yahoo Finance Canada. “The major ETF providers in Canada (Vanguard, iShares, and BMO) all offer funds that hold hundreds of emerging markets companies, and they all have fees of 0.27 per cent or less.”
Those ETFs track a broad basket of stocks, like the MSCI emerging markets index. Anyone considering investing should think long-term.
“Since the start of 1999, the MSCI Emerging Markets Index has returned about 7.7 per cent annually, which outpaced the U.S., Canada, and international developed markets (in Canadian dollars),” says Bortolotti. “But it has also been the most volatile of those asset classes, with some very significant drawdowns along the way: during the financial crisis of 2008, emerging markets fell about 50%.”
Some investors think the political climate in the U.S. brings its own risks.
“The U.S. market is expensive and over-owned,” Darren Sissons, Partner at Campbell, Lee & Ross, told Yahoo Finance Canada. “Tariffs will bite at some point and there will be backlash from the Trump Administration’s anti-trade agenda.”
Sissons invests in individual stocks like China Mobile (CHL), CK Infrastructure (1038.HK), and Shinhan Financial (SHG). He says the next U.S. interest rate hike will be a chance to add more emerging markets exposure.