Emerging Gains: Africa to Mexico

04/03/2014 10:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

 

Critics of emerging markets fail to see how compelling their fundamental values are becoming; the MSCI Emerging Market Index trades at only 8.9 times expected earnings versus 14.4 times for global stocks as a whole and 15.7 for the US, observes Jim Powell, editor of Global Changes & Opportunities Report.

This year, the average growth in emerging countries is expected to be under 4.0%, versus 2.5% in the US, and 0.5% in Europe. Lastly, not all emerging markets are the same, which is why I don’t recommend a broad emerging markets fund.

Some developing countries are poor bets right now, but others are very attractive. Shorter-term, The Mexico Fund (EWW) is my number one choice as the most promising country ETF for this year.

Mexico is already on a roll. Since his election in 2012, President Enrique Peña Nieto has built an impressive track record for promoting business, attacking corruption, and modernizing the country.

President Nieto also placed an emphasis on catering to the needs of US companies, especially in aerospace, automobiles, medical devices, and information technology.

As a result, Mexican factories are becoming vital links in the supply chains for countless US corporations. US/Mexico trade is up 506% since 1993 and now tops $1 billion a day.

To be sure, the drug cartels are still causing mayhem in Mexico, but they are mostly at war with each other. To be frank, I don’t think the cartels should discourage investors from taking a stake in Mexico’s future.

For long-term investing, we continue to recommend Africa Funds—the iShares South Africa (EZA), the SPDR Mideast & Africa (GAF), and the TRP Africa & Mideast (LX:TRPMEAI).

I am also giving the African funds my highest recommendation for long-term gains. They are made to order for family trusts, retirement accounts, and other long-term portfolios.

I believe Africa will ultimately rival the post-WW2 Japanese “miracle,” and the Chinese transformation that started in 1978. For ground floor investors, Africa is the place to be.

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