Investment Contrarians

Why You Need to Have Money in the Emerging Markets

By for Investment Contrarians |

Money in the Emerging MarketsGlobal networking giant Cisco Systems, Inc. (NASDAQ/CSCO) beat on revenues and earnings estimates in its 2013 fiscal first-quarter on Tuesday. What was interesting, but not a surprise, was the company’s good performance from its Asia-Pacific and EMEA (Europe, the Middle East, and Africa) regions; albeit, it was mostly because of the Middle East and Africa regions, as the Europe division continues to be a drag on the stock’s growth due to economic contraction in the eurozone.

The Asia-Pacific and EMEA regions now account for 41% of the company’s total revenues. (Source: “Cisco Reports First Quarter Earnings,” The Network, November 13, 2012.) The results demonstrate the growing importance of the non-U.S. markets, particularly Asia, and the emerging markets to Cisco among other multinational companies.

Take a look at the recent results from global credit card provider MasterCard Incorporated (NYSE/MA). Consumer spending is on the rise; at least via credit cards. MasterCard is a good global barometer on consumer spending, as the company has a presence in over 210 countries. In a third-quarter press release, MasterCard reported that its worldwide purchase volume surged 12% in the third quarter on a local currency basis (“MasterCard Incorporated Reports Third-Quarter 2012 Financial Results,” Yahoo! Finance via BusinessWire, October 31, 2012, last accessed November 14, 2012.) MasterCard President and CEO, Ajay Banga, said, “Additionally, emerging geographies and governments continue to provide great opportunities for growth.”

Again the interesting point to note is the growing use of credit in the emerging markets where cash was king in consumer spending. MasterCard clearly sees new markets in these growth regions where the per capita income is rising, helping to drive consumer spending and economic growth.

In the case of Cisco and other multinational companies, there is an excellent global opportunity for growth in the emerging markets due to rising income levels and consumer spending.

As many of you know, I feel China and India will be the explosive areas for consumer spending given that over one-third of the world’s population lives in these two countries and both have are driving to improve standards.

On a smaller but equally important scale, the consumer spending growth areas that are key in Asia are the “Little Tigers,” comprising of Hong Kong, Singapore, South Korea, and Taiwan. The wealth levels in these regions are extremely high.

South Korea, the fourth-largest economy in Asia, grew at 6.1% in 2010, but growth is estimated to fall to 3.5% this year, according to the Bank of Korea. This is only a blip in growth, as South Korea has tremendous long-term upside potential. Top companies include Samsung Electronics Co. Ltd., LG Electronics, and Hyundai Motor Company.

Latin America is also hot for consumer spending. The region’s gross domestic product (GDP) growth is estimated to slow to 3.7% this year, down from 4.5% in 2011, according to the International Monetary Fund (IMF). On the plus side, growth is expected to rally to 4.1% in 2013. The key player in Latin America is Brazil, which will spend heavily as it gets ready for the World Cup in 2014, followed by the Olympics in 2016. There are numerous Brazilian stocks on U.S. exchanges.

Another emerging region that will see strong consumer spending growth is Eastern Europe—namely Russia, the largest economy in Eastern Europe, and Poland, the second-largest economy in the region.

To diversify your portfolio and add possible higher returns, take a look at these emerging markets.

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