Emerging Markets Are Making Investors Brilliantly Rich Again

Chasing last year’s best performer can be risky but there are signs that emerging markets can do it again in 2018.

Flags of Brazil, Russia, India, China and South Africa

Image source: Getty Images.

After nearly a decade in the doldrums, emerging markets are back – and with a bang!

They were the best performing asset class in 2017, according to fund manager Fidelity, closely followed by Asia Pacific equities, which to many people is the same thing.

Emerging market stocks easily beat other strong performers such as Europe and Japan, and blitzed bonds and cash.

Chasing last year’s best performer can be risky but there are signs that emerging markets can do it again in 2018.

And because they are more volatile than developed markets, when they grow they can quickly become millionaire makers!

Rising BRICS

Emerging markets have just posted their best year since 2009, growing a chunky 37.72%, according to MSCI, well ahead of the rest of the world’s at (a still impressive) 14.4%.

China had an astonishing year, its stock market growing 52.5%, while India grew 30.49%, South Africa 36.12% and Brazil 24.11%. Of the BRICS only Russia disappointed, growing just 0.08%.

Many smaller markets to also put on a show well, for example, Hong Kong leapt 36.17%, South Korea climbed 30.56% and Singapore rose 25.46%.

Developed markets also did well, but not that well. The U.S. rose 21.90%, the UK rose 22.38% and Canada was up 9.22%, as measured by MSCI.

Germany rates a mention, though, rising 27.70%.

Momentum builds

Chasing strong performance is always dangerous, but there are signs emerging markets could do it again in 2018.

First, momentum is on their side. Growing investor and business confidence looks set to trigger a virtuous circle, as higher investment inflows release pent-up domestic demand and trigger domestic growth cycles, which further boosts confidence, and so on.

Racing ahead

The IMF is upbeat, predicting global GDP will rise 3.7% this year but this rises to 4.9% for emerging markets, up from 4.6% in 2017. It forecasts China will climb 6.5% and India a whopping 7.4%.

As ever, risks remain, with the IMF warning that China must accelerate efforts to curb its credit bubble while India’s transition from a cash-based society to digital banking is proving disruptive.

Russia is still too dependent on high oil prices, while both Brazil and South Africa are hampered by corruption and political scandals.

These risks will always be there, to a degree, and no reason to hold your nose and stay away.

Dollar weakness is another tailwind for emerging markets, as this shrinks their foreign debt liabilities and reduces the cost of their dollar-priced commodity exports to customers, which should boost demand.

Right balance

Emerging markets also look far better value than the U.S. stock market. While the S&P 500 index currently trades on a price-to-book ratio of 3.1, Brazil, China, Poland, South Korea and Russia look far cheaper ranging between 0.8 and 1.8, according to figures from Saxo Bank.

Emerging markets are back so check what exposure you already have to this fast-growing sector. You might want a little more…

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.

More on Investing

A worker gives a business presentation.
Stocks for Beginners

2 Reasons to Buy Onex Stock Like There’s No Tomorrow

Onex (TSX:ONEX) stock has been a strong performer over the years, both in terms of growth and dividends that investors…

Read more »

Canadian Dollars
Stocks for Beginners

The Best Stocks to Invest $5,000 in Right Now

Are you looking to put some cash into the stock market? Here are three picks to put on your watch…

Read more »

calculate and analyze stock
Dividend Stocks

Got $1,000? 3 Dividend Stocks to Buy and Hold Forever

Dividend stocks like Restaurant Brands International (TSX:QSR) can pay substantial amounts of passive income.

Read more »

financial freedom sign
Bank Stocks

This Ridiculously Cheap Warren Buffett Stock Could Help Make You Richer

American Express stock is part of Warren Buffett's equity portfolio, and the stock trades at a steep discount in 2024.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, February 26

After rising for two weeks in a row, the main TSX index is now at its highest level in more…

Read more »

stock analysis

Buy the Dip: 2 Stocks to Buy Today and Hold for the Next 5 Years

These Canadian stocks are trading at discounted valuations, providing an opportunity for buying the dip.

Read more »

bulb idea thinking

Safety in Size? 2 of the Bluest Blue-Chip Stocks I’d Buy Now

TC Energy (TSX:TRP) and another cash cow have huge dividend yields for safe investors.

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »