Should Investors Follow Soros into Emerging Markets?

Obtain emerging markets exposure with Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP), and Manulife Financial Corp. (TSX:MFC)(NYSE:MFC).

| More on:
The Motley Fool

In a surprise move, famed billionaire investor George Soros bulked up his exposure to emerging markets by investing almost US$92 million in the iShares MSCI Emerging Markets ETF. This was despite concerns that a firmer U.S. dollar and stronger U.S. economic growth will harm growth in emerging economies.

Despite these worries, especially the fear that Trump will institute his protectionist trade policies, there are signs that emerging markets are shaping up as one of the best contrarian plays available to investors. 

Now what?

Firstly, Trump’s proposed trillion-dollar infrastructure investment will drive higher demand for commodities, particularly metals such as iron ore, copper, and zinc, as well as steel-making coal, which are all essential construction materials.

This is especially important for emerging markets because a large number are highly dependent on the extraction and export of commodities as a key driver of economic growth.

Copper has surged to be up by 28% over the last three months, which bodes well for Chile and Peru because they are the world’s largest and third-largest copper producers, respectively.

Investors can gain exposure to those emerging markets without leaving the safety of home by investing in Bank of Nova Scotia (TSX:BNS)(NYSE:BNS).

Canada’s third-largest bank has built a considerable presence in Latin America, where it is the third-largest bank in Peru, the fifth-largest in Colombia, and the seventh-largest in Mexico. It also owns 51% of the consumer finance business of Chile’s largest retailer Cencosud S.A., giving it considerable exposure to Chile’s rapidly growing consumer-lending market.

Secondly, analysts expect emerging economies to benefit from an improvement in global demand, which will boost their economic growth over the next year.

Investors can profit from this improving economic outlook by investing in Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP).

Not only does it benefit from predictable cash flows and operate a range of hard assets in oligopolistic markets, but it gives investors considerable direct and indirect exposure to Asia. This is particularly important because economists expect Asia to be the fastest-growing region in 2017.

Brookfield Infrastructure owns a range of transport as well as energy infrastructure assets in India, China, and Australia, which will experience a marked uptick in demand as the economies of India and China continue growing at a rapid pace.

Brookfield Infrastructure also gives investors exposure to Colombia, Chile, Peru, and Brazil, where it owns a broad range of utility and transport assets.

Finally, rapidly growing wealth as well as an expanding middle class across Latin America and Asia will trigger an uptick in consumption in those regions, helping to drive higher economic growth.

This will benefit those companies like Bank of Nova Scotia and Manulife Financial Corp. (TSX:MFC)(NYSE:MFC), which provide a range of financial services in those regions.

In fact, Manulife is now one of the largest providers of insurance, wealth and asset management products, and services across Asia, generating half of its net income from the region. This means it will profit from the region’s solid economic growth over the next year as well as from the growing demand for wealth management and investment services. 

So what?

These aren’t the only reasons for investors to add emerging markets exposure to their portfolios. Soros is not the only investment guru to bet on emerging markets; investment heavyweights Ray Dalio and Stanley Druckenmiller also have extensive exposure. It appears that Wall Street is expecting emerging markets to perform strongly in the coming year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada.

More on Investing

Shopping for consumer goods
Investing

Why Shopify Stock Fell 4% in September

Shopify (TSX:SHOP)(NYSE:SHOP) stock is doing its best to keep growing amid rising macro headwinds.

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Investing

3 TSX Stocks I’d Buy This Week

Are you struggling to find stocks to add to your portfolio this week? Here are my three top picks!

Read more »

Target. Stand out from the crowd
Dividend Stocks

3 Oversold Stocks to Buy for Passive Income

These three oversold stocks aren't just great right now for high passive income, but provide exposure to high-growth industries.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Investing

3 Stocks to Hold in Your TFSA for Easy Tax-Free Income

Telco stocks like BCE Inc (TSX:BCE) offer high dividend income -- especially when held in a TFSA!

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Investing

Why Shawcor (TSX:SCL) Stock Jumped 9% in September

Shawcor Ltd. (TSX:SCL) stock has rallied off big gains after announcing that big changes may be ahead over the next…

Read more »

Mature financial advisor showing report to young couple for their investment
Bank Stocks

Retire Young: How to Turn a TFSA or RRSP Into $1 Million

Here’s how you can turn your TSFA or RRSP into $1 million or more to plan your early retirement.

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Cannabis Stocks Jump: What Investors Need to Know

Cannabis stocks have started to recover in recent weeks, showing there might be signs that now is the time to…

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: Invest $30,000 to Earn $500,000 + $7,800 in Tax-Free Dividends

Make the power of compounding work for you and turn a $30,000 investment into $500,000 in the next 20 years.

Read more »