While Bitcoin and other cryptocurrencies continue to garner the bulk of attention and prove to be a distraction for investors, there are a range of other investment opportunities that will deliver solid returns over the long term. One opportunity that has been ignored by many investors is emerging markets. After almost a decade of lacklustre returns, emerging markets have started to perform once again. Over the last year, the MSCI Emerging Market Index has soared by 28%, and there are signs of further gains to come, making now the time for investors to boost their exposure to emerging markets.
Now what?
In October, the International Monetary Fund, or IMF, upgraded its outlook for the global economy, lifting projected 2017 global GDP growth to 3.6% and 3.7% for 2018.
According to the IMF, much of that additional growth will come from emerging economies, including Russia, South America, as well as Asia. The recovery of commodities — notably, coal, copper, zinc, gold, iron ore, and oil — has been a boon for developing economies such as Brazil, Chile, Colombia, and Peru.
You see, for many developing nations, the extraction and export of commodities is an important driver of economic growth.
The economic outlook for Brazil, which is the world’s ninth-largest economy, continues to improve with growth having finally returned to the South American nation after contracting for eight quarters straight. Growth has picked up in the continent’s fourth-largest oil producer, Colombia, and is firming in the world’s second-largest economy and primary consumer of commodities, China.
India, which last year outgrew China to become the world’s fastest-growing major economy, is also experiencing an uptick in economic activity, which analysts are predicting will see its GDP expand by 7.2% in 2018.
Clearly, the uptick in growth in India and China will support higher commodity prices, which in turn will stimulate other emerging markets that are dependent on iron ore, coal, and copper exports, such as Brazil, Chile, and Peru. That will translate into improving business as well as consumer confidence, increased consumption, and higher demand for credit in those countries.
Another advantage that comes from investing in emerging markets is their lack of correlation to developed economies. This means that if there is a U.S. or Canadian market correction, the fallout won’t be as severe among financial markets in emerging economies.
So what?
One Canadian stock positioned to benefit from the stronger growth in Latin America is Bank of Nova Scotia (TSX:BNS)(NYSE:BNS). The bank generates 43% of its net interest income from international operations, which are focused on Latin America, particularly Colombia, Peru, Chile, and Mexico. Bank of Nova Scotia is currently in the process of acquiring the Chilean subsidiary of Spanish bank Banco Bilbao Vizcaya Argentaria, S.A. for $2.9 billion, which, if successful, will significantly boost its presence in the region.
Another option to gain diversified exposure without leaving the safety of Canada is by investing in Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP). It owns and operates a range of infrastructure including ports, rail networks, toll roads, natural gas utilities, and communication towers in South America, India, Europe, and North America. That means it is well positioned to benefit from the improved global economic outlook as well as the higher rates of growth being experienced by emerging markets.
