Stock Watch: Emerging Markets

Emerging market (EM) companies have benefited from the global flow of capital into the markets. Despite this, the valuations of most of these companies remain attractive. The MSCI EM Index traded at a price-to-earnings ratio slightly above its long-term average of 11.3x at the end of Q1 2024. The valuation discount makes EM value stocks particularly appealing, especially given their strong fundamentals.

Growth catalysts are in place

Emerging markets are experiencing significant growth driven by digital transformation, with countries like India and Brazil making major strides in digital infrastructure like e-commerce, mobile payments, and broadband. This digitalization is enhancing the efficiency of SMEs and creating new revenue streams.

Additionally, with the continued possibility of rate cuts coming soon from the Federal Reserve, capital flows may shift from the US to emerging markets, attracting investment in regions like China, India, and Brazil.

Stocks to watch

Based on the positive outlook for emerging markets, here are some stocks to watch:

1. MercadoLibre (MELI)

As one of the largest e-commerce platforms in Latin America, MercadoLibre continues to benefit from the region's growing internet penetration and online shopping trends. The company has strategically positioned itself for continued growth, leveraging advanced technology and a deep understanding of local markets to enhance its service offerings and market presence.

2. Alibaba (BABA)

Alibaba remains a dominant force in China's e-commerce and cloud computing sectors. Its vast ecosystem of digital services makes it a strong contender as China's economy continues to recover. The stock appears undervalued despite several positive recent developments, including forthcoming capital market reforms in China, government investments in real estate, and the IMF's upward revisions of China's GDP growth.

3. Tencent (TCEHY)

Tencent is another major player in China's digital landscape. Tencent's broad operational scope and diversified business model covering communication, digital content, FinTech, and cloud services position it well for sustained growth and innovation in its primary and international markets.