The U.S. presidential election’s immediate effect on emerging markets might be described as a Trump Dump. Stocks from Latin America to Asia plunged as investors worried that the candidate’s protectionist rallying cries could translate into trade wars. Today, with the President having moderated his rhetoric, those fears have receded, and many markets have surged. BlackRock, the world’s largest asset manager, is more bullish on emerging markets than on any developed ones, and its chief equity strategist Kate Moore says she is “pretty excited” about business and supply-chain reforms that have made companies there more profitable.
Michael Kass, manager of the $3.3 billion Baron Emerging Markets Fund, looks for “EM 2.0” companies that are rich in “intellectual capital” and focused on innovation. He’s enthused about India, which he says is in the early days of an expansion as its economic reforms take root. He likes Housing Development Finance Corp., India’s top mortgage provider, as well as private-sector banks like Kotak Mahindra. (U.S. investors can own those stocks through the iShares India 50 ETF, which tracks blue-chip companies.)
Worries about a slowdown in China have kept EM investors on edge. But Thornburg’s Brian McMahon, who comanages the company’s Global Opportunities Fund, sees value in China Mobile (CHL), a state-owned mobile service provider that has more than 800 million customers—including 500 million–plus on 4G. It trades on the New York Stock Exchange at 14 times earnings and pays a 3% dividend. “Probably, consumption of communications will go up more than consumption of Coca-Cola and Oreos, or McDonald’s hamburgers,” McMahon says. “But [telecom] companies trade at much lower multiples” than McDonald’s (MCD), Coca Cola (KO), or Oreo-maker Mondelez (MDLZ).
Chinese tech giants like Tencent (TCEHY) and Alibaba (BABA) better exemplify Kass’s preference for entrepreneurialism. Both trade at all-time highs, but there is a cheaper door into Alibaba: buying Yahoo (YHOO). That tech also-ran will soon be folded into Verizon (VZ), but its Alibaba shares will be preserved as a separate entity, called “Altaba,” and are currently valued at less than Alibaba’s shares on the open market, according to Ken Allen, manager of the T. Rowe Price Science & Technology fund.
PICKS:
Housing Development Finance Corp. (NSE: HDFC, $24, as of 5/12/17)
iShares India 50 ETF
China Mobile (CHL)
Kotak Mahindra (NSE: Kotakbank, $15)
Alibaba (BABA)
This article is part of Fortune’s 2017 Midyear Investor’s Guide feature. For our picks in other sectors, click on the links below:
- Why Apple Is One of the 5 Best Dividend Stocks to Buy Now
- Why Google and Amazon Top the List of the 6 Best Tech Stocks to Buy
- How to Invest In Bonds Even if Interest Rates Rise
- The 3 Best Oil Stocks to Buy Right Now—Even if Energy Prices Fall
- The 3 Best Bank Stocks to Buy Now—Whether Tax Reform Happens or Not
This article appears as part of the Midyear Investor’s Guide package in the June 1, 2017 issue of Fortune.
