Jurg Widmer Probst

We are well into the third quarter of 2018, a year that is seeing economic boom in the US, the start of a European recovery and a decline in Emerging Markets (EM) compared with their high during 2017.

Equity markets are high, but the macro environment remains relatively benign, meaning the valuations should be considered in this context. It’s likely that equity markets will continue to new heights, powered by the supportive macro-environment. However, the US economy could be heading towards overheating, while more restrictive financial conditions could continue to slow the EU recovery. There are geopolitical risks relating to China, North Korea or US trade relations that could also crop up at any time.

So, how should investors make their way through the potential risks that remain for the rest of 2018 the particular connotations of the specific economic environment mean that a dynamic approach is needed in terms of asset allocation. Investors should have a strategy that looks beyond the main developed market, as well as a fixed income approach that looks for returns outside of developed market corporate and government bonds.

Global expansion

We are seeing global equity markets storming to new heights this year, and I think that the market cycle is yet to mature. Investors must be willing to plan for more risks, which could include central banks tightening restrictions, unpredictable geopolitical developments and slower growth. I think that EM will outperform developed economies.

Taking China out of the equation, EM is an investment hotspot and is a better bet than investing in developed market assets.

Which stocks are best?

Many investors do not run a portfolio that maximises its potential. Diversifying appropriately is important and investing in EM is a good way to do this. Obviously, you need to keep in mind any potential currency risk before you make a decision. Have a look at the following as good examples of potential investments:

• Naspers Limited – this is a South African holding company that invested $32 million in China’s Tencent, an online gaming company. This is worth about $180 billion today as Tencent is one of the 15 most valuable companies in the world. It’s 34% owned by Naspers.
• Alibaba Group Holdings – one of Tencent’s rivals, China’s Alibaba is one of the best emerging stocks to look at. Investing in this is like getting the opportunity to get in on Amazon a few years ago. Alibaba currently has about 580m active users a month, which is exceptional for an ecommerce company.
• Mobile TeleSystems – proving that not every best emerging market stock is in china, Mobile TeleSystems is Russian. It’s a wireless and telecoms company, which means slow and steady growth. It yields 7.3% and is a good bet for investment.
• Telkom Indonesia – Indonesia’s wireless giant continues to do well due to macroeconomic boost such as a fast-growing population and impressive GDP growth.
• Cosan Ltd – one of the biggest companies in Brazil, Cosan is an energy provider. They sell lubricants, fuels, sugarcane ethanol and natural gas and is one of the best emerging stocks to invest in right now.

Jurg Widmer Probst