With slow growth, unemployment and leadership vacuums plaguing the developed world, many investors have continued to seek exposure to faster-growing emerging markets. Their changing political landscapes, urbanization, rising middle classes and increasing wealth are allowing many of these nations to move from the fringes into the mainstream global economy. However, like snowflakes, no two emerging markets are alike. Each has their own nuances and potential pitfalls. To that end, many investors use broad funds like the Schwab Emerging Markets Equity ETF (NYSE:SCHE) to circumvent that risk. Nevertheless, there is more than one way to gain exposure, and sometimes it pays to hire a guide.
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"The" Emerging Markets Guru
What Jim Rogers is to commodities investing, Franklin Templeton's (NYSE:BEN) Mark Mobius is to the emerging world. Overseeing more than $50 billion in emerging market assets and serving as executive chairman of Templeton's emerging markets group, Mobius is regarded by many in the financial industry as the leading pundit on emerging markets. The guru's knowledge of these developing nations has certainly rewarded investors. His signature Templeton Developing Markets (Nasdaq:TEDMX) mutual fund has produced an annual 8.53% return since its inception in 1991. Dr. Mobius is also a very vocal commentator on emerging markets who runs a blog and is regularly quoted by major financial news sources. For retail investors, following the doctor's advice on which developing markets make better buys today is quite easy. Here is a rundown of what nations Mobius is currently recommending and how to play them.
Despite the political pressures facing Thailand, Mobius is bullish long term and used the market's downturn to add more Thai stocks to his funds. Overall, investors in Thailand have become accustomed to political conflict after nearly 25 prime ministers, 18 versions of its constitutions and 11 successful coups since the 1930s. Thailand, which is the world's biggest supplier of rice, saw its exports rise 67% in May, and its GDP is expected to grow 4.1% in 2011. For investors wanting to add Thailand's long-term agricultural strength to a portfolio, the iShares MSCI Thailand (NYSE:THD) follows 88 different Thai companies.
Mobius is also bullish on the long-term picture in Indonesia, citing the country's population and wealth growth. The Market Vectors Indonesia Index ETF (NYSE:IDX) follows 39 different firms including Telecom Indonesia (NYSE:TLK) and Indosat (NYSE:IIT). Overall, the ETF has returned 75% since its inception in 2009.
Bargains in Europe
While developed Europe trudges through the quagmire of debt problems and austerity, emerging Eastern Europe is booming. The trio of Romania, Russia and Poland has produced great growth in the face of the West's debt issues. Mobius believes that Russia will continue to see long-term strength across its agriculture, natural resources and oil sectors, while Poland is benefiting from increasing consumer consumption and strong political structure. The SPDR S&P Emerging Europe (NYSE:GUR) can be used as proxy for the region, although it is very Russia-heavy. The country makes up nearly 64% of assets. Investors can supplement the fund with the iShares MSCI Poland (Nasdaq:EPOL) or individual Polish equities like Central European Distribution (Nasdaq:CEDC).
Finally, Mobius sees tremendous possibilities from the frontier markets in the Middle East. Overall, he believes that the recent political unrest and uncertainty will ultimately be a blessing and create a healthier environment for stock investors. Backed by fossil fuel revenues, MENA nations will experience greater spending across healthcare, infrastructure and urbanization. The PowerShares MENA Frontier Countries (Nasdaq:PMNA) offers a way to bet on the growth in these countries.
The Bottom Line
For investors, adding exposure to emerging market nations has never been more important. However, all of these nations offer different risk-reward profiles, and sorting through them is a daunting task. By following a proven winner in the space, retail investors can profit. The previous picks represent Mark Mobius' best ideas and how to play them. (For additional reading, see The Risks Of Investing In Emerging Markets.)
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