With sky-high stock valuations in the U.S., these strategists say looking abroad may be investors’ best bet now. And these 4 stocks in particular look attractive.
Even as the coronavirus pandemic has wreaked havoc on the economy and thrust the U.S. into a recession, the stock market has soared.
While the S&P 500 is down around -13% from its all-time high reached earlier this month, the index is still up 45% since the March bottom. The Dow is up 44% since the bottom, and the tech-heavy Nasdaq has risen more than 55%.
U.S. stocks are once again at sky-high valuations, and now strategists are finding opportunities abroad where attractive valuations and overlooked areas of growth can be found.
The EEM iShares Emerging Markets ETF has lagged the S&P 500 this year and is down -4.4% year-to-date, with state-owned businesses on average performing even worse.
Chinese telecom China Mobile (NYSE: CHL) is down more than -23% year-to-date, Brazilian miner Vale (NYSE: VALE) and energy name Petrobras (NYSE: PBR) are down by -19% and -52%, respectively, and Russia’s Gazprom (OTC: OGZPY) is down -45% so far this year.
State-owned companies like these typically don’t put profits first, and countries including China and India tend to take a more active role in corporate affairs.
But there are funds that strip out these type of companies that are performing far better.
The XSOE Wisdom Tree EM Ex-State Owned Enterprises ETF is up nearly 5% year-to-date and more than 17% over the last twelve months.
According to Michael Bapis, managing director at Vios Advisors at Rockefeller Capital, focusing on technology could help emerging market stocks offer better opportunity to investors.
“They’ve been depressed for so long,” Bapis said this week. “Now we’re seeing some serious global expansion which is driven by technology, and technology is changing everything, everywhere.”
Bapis believes opportunities can be found at the rapidly expanding intersection of tech-focused companies heading into less-developed markets.
“We probably look at this as an opportunity in the last 10 or 15 years in emerging markets,” Bapis continued. “It’s going to be short-term volatile depending on if the pandemic comes back, elections, but once we get past all that, there’s a massive opportunity here.”
Oppenheimer’s head of technical analysis, Ari Wald, is also bullish on emerging markets and said that he sees a reversal of the downtrend in the space on the horizon.
“We think global equities, EM included, are now reversing higher and you’re going to see global participation expand and lead to additional upside for markets overall not only through the bounds of the year but into 2021 as well,” Wald said.
Wald agrees that a shift away from commodities and toward technology offers opportunity in the emerging markets space, and pointed to the CQQQ China Technology Invesco ETF which is up nearly 29% so far this year.
“I really kind of key on this China technology ETF,” Wald said, pointing to a breakout in July out of multiyear resistance.
“Since then,” Wald continued, “we’ve been in this about two-month consolidation but holding the breakout point. Very often prior resistance becomes support.”