How to Play Emerging Markets With U.S. Stocks
Rachel Koning Beals
Stateside companies that rake in a considerable share of their income in high-growth areas abroad
While the developed world is strapped with heavy debt and an interest-rate policy that has been slow to take hold, emerging markets don't share the same burdens. These budding economies, with their emerging middle class, are increasingly spending on computers, restaurant meals, cars, construction equipment, and other big-ticket items. For investors, increased consumer spending spells opportunity.
Still, because of the volatility and instability often associated with less-mature foreign financial markets as well as potentially undependable and non-standardized financial reporting, investing in stocks through foreign exchanges turns off many U.S. investors.
Another option is investing in U.S. companies that rely on exports -- to
"Without growth from international developed markets, we are left with emerging markets to close the gap. Indeed, recent economic and market trends have provided cause for optimism for the emerging markets," says
Billions of dollars in economic stimulus looks to be finding greater traction in emerging markets such as
Investors can still gain exposure to these fast-growing areas of the world by buying shares of U.S.-based and U.S.-traded companies. Machinery, tech, and food companies, in particular, realize a considerable share of their income in higher-growth areas abroad. Although their stocks remain volatile of late, particularly given the wide swings of the U.S. stock market this year, these companies tend to offer more dependable financial accounting and greater liquidity.
There is some cause for caution. Clearly, the overall health of the global economy will impact production and exports. Leading investment banks have recently downgraded their growth projections for the major economies, which could limit emerging-market growth upside to a degree.
In fact, growth in U.S. containerized exports slowed to 6 percent in the second quarter, compared with 12 percent growth in the previous quarter, according to
High-growth prospects often come with increased volatility risk. But investors should still find ways to bring even a little international flavor to their portfolio, perhaps taking the U.S. angle.
a diversified manufacturer and technology company with operations in more than 65 countries, has invested abroad and is expanding through both organic growth and acquisitions. The company has a solid capital structure and a 2.9 percent dividend yield. MMM is trading near its 52-week low of
Two of the bigger tech firms that have already grown an emerging market presence -- and look to continue -- are
Intel (INTC), trading near
Several analysts point to
when thinking of companies positioned to benefit from global construction growth. The world's largest producer of earthmoving equipment sells plenty of machinery to emerging markets and is making more of its equipment in plants operating right in those markets. CAT, which pays a 2.2 percent dividend yield, is drifting in the lower portion of its
Sector-specific exchange-traded funds (ETFs) can also provide export exposure. They include:
Aerospace & Defense (PPA): Offers exposure to companies involved in the development, manufacturing, operations, and support of U.S. defense, homeland security, and aerospace operations, as well as other industrial goods.
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