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4 Emerging Market Stocks to Tap 2021 Economic Rebound
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The Organization for Economic Cooperation and Development or OECD recently came out with a forecast for 2021, which has kept emerging-market stock watchers buoyant for the coming year. The prediction says that the global economy, which is expected to recover to the pre-pandemic level in 2021, will be primarily led by strong recoveries in emerging economies, particularly Asian nations like China, Indonesia and South Korea based on their efficient pandemic handling.
India, which faced a severe GDP contraction of an estimated 9.9% this year, is expected to rebound pretty well in 2021 on a projected recovery rate of 7.9% banking on suitable execution of fiscal support, which should lead to slow but gradual recovery of the job market. Although the OECD projection remained insipid for Brazil (from an estimated 6% slash in 2020 to only a projected 2.6% GDP growth for 2021), on closer examination, some economists do offer a glimmer of hope banking on the fact that Brazil’s domestic demand strongly recovered in the third quarter ( real GDP growth was 7.7%).
Russia’s GDP reduction in 2020 was broadly in line with the global contraction (down 4.3%). This is expected to see a rebound of 2.8% in the coming year. Outside the OECD members, Thailand, Taiwan, Philippines are expected to prove as the big movers of 2021.
2020 FDI Synopsis of Emerging Markets
The above data and projections are a bit at odds to what exactly the emerging market has gone through during the pandemic so far. Apart from China, all the heavyweight emerging economies faced significant downturn in this period despite these countries’ anti-crisis efforts in the form of monetary and fiscal measures.
Per UNCTAD’s (United Nations Conference on Trade and Development) Oct 27-published report, global foreign direct investment (FDI) flow in the first half of 2020 fell 49% year over year due to the unprecedented economic rout. Amid the pandemic, lockdowns, restricted trades, supply disruptions and economic slowdown, multinational enterprises started to restrain from opting for new FDI projects investmentprojects.
FDI flow to developing economies declined 16% in the first half of 2020. Flows to economies in transition were down 81% due to a strong decline in the Russian Federation. In Russia, the ongoing geo- political risks, combined with uncertainty around the second wave of the pandemic and limited amount of anti-crisis stimulus are expected to have hit hard FDI investors’ sentiment.
As investment in China remained robust, the percentage decline in Asia was overall decent (down 12%). Another emerging Asian economy, India, following 20% FDI growth in 2019, was initially expected to experience an FDI free fall through 2020. However, a per different local news sources, banking on relaxed FDI norms, during April-September 2020, India attracted FDI worth $7.12 billion from the United States while $8.30 billion of foreign inflows came from Singapore.
However, FDI was 28% lower in Africa and 25% lower in Latin America and the Caribbean.
2021 FDI Prospects Bullish
According to UNCTAD, despite the 2020 drop, FDI remains the most important source of external finance for developing countries. UNCTAD’s two biggest indicators of future FDI — cross-border acquisitions and green-field investment projects roadmap for 2021 — seem to be quite bright at this moment. Although the execution depends primarily on a successful rollout and phase wise distribution of vaccination across these highly populated regions, the outlook for emerging economies remains upbeat.
As stated earlier, banking on the quickest recovery from the pandemic, China’s 2020 FDI inflow report itself was extremely impressive. China’s Ministry of Commerce data says (as published in China Briefing), FDI inflow into China rose 5.2% in the first nine months of 2020. There were 22,602 foreign-invested enterprises (FIE) having newly established by the end of August. In September alone, FDI inflows into the country were up 25.1% year over year. Companies like ExxoMobil, BMW and Toyota increased their investment in China in 2020. Economists are of the belief that with gradual recovery through 2021, this trend is expected to see a further jump.
India is expected to remain a happy hunting ground for foreign investors through 2021 banking on cheap labor cost and low corporate tax (15%). Nomura recently stated India to be the fastest growing Asian economy in 2021 with a projected growth rate of 9.9% (published in India Briefing), exceeding OECD’s projection. In this regard, recently the government of India cleared a list of firms including Apple’s three major manufacturing partners — Foxconn, Wistron, and Pegatron, along with Samsung for a $143 billion Make-in-India Plan.
Brazil too is expected to show a better picture in terms of FDI inflow the next year. Data published in The Street report says, there was a significant inflow of funds in the external financial account in October and November for investments in both stocks and fixed income instruments. However, whether this recovery will continue or not depends on the extent to which Brazil regains its attractiveness for foreign investors, banking on its upcoming fiscal and monetary agenda.
Brilliance China Automotive Holdings Ltd : This is an investment holding company that manufactures and sells BMW vehicles and automotive components in the People's Republic of China and internationally. The stock carries a Zacks Rank #1. Its 2021 sales and earnings growth is pegged at 6.9% and 6.5%, respectively. In terms of current-year P/E, the company is trading at a discount of 2.95X compared to the industry’s 24.2X.
Baidu, Inc. (BIDU - Free Report) : This is a renowned Chinese language Internet search provider. The company’s 2020 roadmap was extremely bright riding on the wave of the fast-emerging intelligent economy. This Zacks Rank #1 stock’s 2021 sales and earnings growth is pegged at 15.7% and 10.9% respectively.
Impala Platinum Holdings Ltd. (IMPUY - Free Report) : This Zacks #1 ranked company is engaged in mining, processing, refining, and marketing platinum group metals (PGMs) in South Africa and Zimbabwe. The company produces platinum, palladium, and rhodium, as well as chrome and nickel ores. In terms of current-year P/E, the company is trading at a discount of 4.69X compared with the industry’s 15.23X. It also holds a healthy cash position with current cash flow growth of 125.5%.
Dr. Reddy's Laboratories Ltd. (RDY - Free Report) : This is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines since 1984. The company is headquartered in Hyderabad, India. This Zacks Rank #3 (Hold) stock holds significant prospects for 2021 with sales and earnings growth projected to be 10.5% and 12.6% respectively.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
Image: Bigstock
4 Emerging Market Stocks to Tap 2021 Economic Rebound
The Organization for Economic Cooperation and Development or OECD recently came out with a forecast for 2021, which has kept emerging-market stock watchers buoyant for the coming year. The prediction says that the global economy, which is expected to recover to the pre-pandemic level in 2021, will be primarily led by strong recoveries in emerging economies, particularly Asian nations like China, Indonesia and South Korea based on their efficient pandemic handling.
India, which faced a severe GDP contraction of an estimated 9.9% this year, is expected to rebound pretty well in 2021 on a projected recovery rate of 7.9% banking on suitable execution of fiscal support, which should lead to slow but gradual recovery of the job market. Although the OECD projection remained insipid for Brazil (from an estimated 6% slash in 2020 to only a projected 2.6% GDP growth for 2021), on closer examination, some economists do offer a glimmer of hope banking on the fact that Brazil’s domestic demand strongly recovered in the third quarter ( real GDP growth was 7.7%).
Russia’s GDP reduction in 2020 was broadly in line with the global contraction (down 4.3%). This is expected to see a rebound of 2.8% in the coming year. Outside the OECD members, Thailand, Taiwan, Philippines are expected to prove as the big movers of 2021.
2020 FDI Synopsis of Emerging Markets
The above data and projections are a bit at odds to what exactly the emerging market has gone through during the pandemic so far. Apart from China, all the heavyweight emerging economies faced significant downturn in this period despite these countries’ anti-crisis efforts in the form of monetary and fiscal measures.
Per UNCTAD’s (United Nations Conference on Trade and Development) Oct 27-published report, global foreign direct investment (FDI) flow in the first half of 2020 fell 49% year over year due to the unprecedented economic rout. Amid the pandemic, lockdowns, restricted trades, supply disruptions and economic slowdown, multinational enterprises started to restrain from opting for new FDI projects investmentprojects.
FDI flow to developing economies declined 16% in the first half of 2020. Flows to economies in transition were down 81% due to a strong decline in the Russian Federation. In Russia, the ongoing geo- political risks, combined with uncertainty around the second wave of the pandemic and limited amount of anti-crisis stimulus are expected to have hit hard FDI investors’ sentiment.
As investment in China remained robust, the percentage decline in Asia was overall decent (down 12%). Another emerging Asian economy, India, following 20% FDI growth in 2019, was initially expected to experience an FDI free fall through 2020. However, a per different local news sources, banking on relaxed FDI norms, during April-September 2020, India attracted FDI worth $7.12 billion from the United States while $8.30 billion of foreign inflows came from Singapore.
However, FDI was 28% lower in Africa and 25% lower in Latin America and the Caribbean.
2021 FDI Prospects Bullish
According to UNCTAD, despite the 2020 drop, FDI remains the most important source of external finance for developing countries. UNCTAD’s two biggest indicators of future FDI — cross-border acquisitions and green-field investment projects roadmap for 2021 — seem to be quite bright at this moment. Although the execution depends primarily on a successful rollout and phase wise distribution of vaccination across these highly populated regions, the outlook for emerging economies remains upbeat.
As stated earlier, banking on the quickest recovery from the pandemic, China’s 2020 FDI inflow report itself was extremely impressive. China’s Ministry of Commerce data says (as published in China Briefing), FDI inflow into China rose 5.2% in the first nine months of 2020. There were 22,602 foreign-invested enterprises (FIE) having newly established by the end of August. In September alone, FDI inflows into the country were up 25.1% year over year. Companies like ExxoMobil, BMW and Toyota increased their investment in China in 2020. Economists are of the belief that with gradual recovery through 2021, this trend is expected to see a further jump.
India is expected to remain a happy hunting ground for foreign investors through 2021 banking on cheap labor cost and low corporate tax (15%). Nomura recently stated India to be the fastest growing Asian economy in 2021 with a projected growth rate of 9.9% (published in India Briefing), exceeding OECD’s projection. In this regard, recently the government of India cleared a list of firms including Apple’s three major manufacturing partners — Foxconn, Wistron, and Pegatron, along with Samsung for a $143 billion Make-in-India Plan.
Brazil too is expected to show a better picture in terms of FDI inflow the next year. Data published in The Street report says, there was a significant inflow of funds in the external financial account in October and November for investments in both stocks and fixed income instruments. However, whether this recovery will continue or not depends on the extent to which Brazil regains its attractiveness for foreign investors, banking on its upcoming fiscal and monetary agenda.
Our Choices
Adding stocks from these countries would make for a prudent choice. We have narrowed our search to the following four stocks based on a favorable Zacks Rank and/or solid metrics. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brilliance China Automotive Holdings Ltd : This is an investment holding company that manufactures and sells BMW vehicles and automotive components in the People's Republic of China and internationally. The stock carries a Zacks Rank #1. Its 2021 sales and earnings growth is pegged at 6.9% and 6.5%, respectively. In terms of current-year P/E, the company is trading at a discount of 2.95X compared to the industry’s 24.2X.
Baidu, Inc. (BIDU - Free Report) : This is a renowned Chinese language Internet search provider. The company’s 2020 roadmap was extremely bright riding on the wave of the fast-emerging intelligent economy. This Zacks Rank #1 stock’s 2021 sales and earnings growth is pegged at 15.7% and 10.9% respectively.
Impala Platinum Holdings Ltd. (IMPUY - Free Report) : This Zacks #1 ranked company is engaged in mining, processing, refining, and marketing platinum group metals (PGMs) in South Africa and Zimbabwe. The company produces platinum, palladium, and rhodium, as well as chrome and nickel ores. In terms of current-year P/E, the company is trading at a discount of 4.69X compared with the industry’s 15.23X. It also holds a healthy cash position with current cash flow growth of 125.5%.
Dr. Reddy's Laboratories Ltd. (RDY - Free Report) : This is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines since 1984. The company is headquartered in Hyderabad, India. This Zacks Rank #3 (Hold) stock holds significant prospects for 2021 with sales and earnings growth projected to be 10.5% and 12.6% respectively.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>