Emerging market stocks from economies that are growing at a fast rate, such as China, India and Brazil have attracted a lot of investor interest recently. I was impressed by how resilient these economies turned out to be as compared to economies of developed nations during the recession. The growth rate of these countries is also far higher than the growth rate of developed nations.
Due to the high GDP growth rate of developing nations, companies from these countries are prospering. That is why investing in their stocks would be a good way to get high returns. The demand for emerging-market stocks is likely to increase in future, and you’ll do well by buying these stocks now and cashing in on an increase in their prices.
The economic climate in emerging markets is good for investment as there is both domestic and foreign capital in these countries, and that is a big positive for the stock market. The economic policies are geared towards growth and they always welcome foreign investments.
Companies from emerging markets have the benefit of cheap labor and plenty of natural resources. Investing in companies that cater to general consumers in the local market would be a safe bet because of the increasing demand for consumer products. The days when people blindly invested in export oriented companies are gone and you should consider investing in companies that cater to local demand.
I would suggest seriously considering stocks of emerging market companies operating in FMCG and banking sectors. These sectors have been growing at a fast pace because of increasing consumer demand. For example:
Several Brazilian banks catering to middle class and small domestic businesses have done well in the recent past and are likely to have a good future.
Focusing on consumer goods stocks and public sector banks in India could also fetch impressive returns. Leading consumer goods companies in India have great prospects, as there is massive demand from the rural parts of the country.
Public sector banks in India have a huge branch network and they are protected by the government, so they offer an opportunity to earn high returns without much risk.
Finally, many fast-growing small companies from emerging-markets can be ideal for a high return portfolio. But remember that smaller businesses also mean greater risk and some of the stocks might decline significantly if the economic recovery loses steam.