As we get ready to enter the final month of the year, many of my friends ask me if I think 2020 will see an upward trend in equity markets or if we should instead brace for more volatility and even a down-leg.
My simple answer is that I do not know! The markets will do what they do, it is almost impossible to know the next move. But while I cannot tell you where the FTSE 100 will be in a few months, I can say that I am getting ready to look beyond our borders.
Emerging markets
Most investors allocate a large portion of their investments to their home countries rather than internationally, as they feel more comfortable buying shares in ‘local’ businesses.
Yet the UK accounts for about 3.5% of the world economy. In other words, there is a whole investing world out there. It is estimated that close to half of global Gross Domestic Product (GDP) comes from emerging markets (EMs).
In 2020, I am optimistic about the growth prospects of many EM economies, as well as their stock markets. Domestic currencies of many of these countries have been weak, a fact that also increases the prospects of an up-leg in their national stock indices.
Furthermore, these economies are not just about low-cost manufacturing, commodities, or materials. Consumer products, plus luxury goods, technology, IT, and financial services are becoming increasingly important for these countries.
EMs and companies in the FTSE
Most of the FTSE 100 companies are multinational conglomerates and up to three-quarters of their revenues comes from overseas, including EMs. One stock that may be worthy of your attention is consumer products giant Unilever.
Its sales rises in emerging markets, where there is high economic growth and the appetite to use branded consumer staples, have been impressive. The group’s established global distribution chain and marketing muscle contribute to a strong balance sheet. Unilever’s revenues, earnings, and dividends have been steady over the years and that translates into a robust portfolio choice for most investors, I believe.
Templeton Emerging Markets Investment Trust, a constituent of the FTSE 250, may be another vehicle to invest in for emerging markets exposure. Investment trusts are collective investment funds, where these assets are managed for a fee. In general, they are structured like ordinary companies and have a fixed number of shares in issue.
The trust’s website provides updated information on its core holdings. Currently, almost a third of the focus is on Hong Kong and China. Next in line are South Korea, Taiwan, Brazil, Russia, India, and Thailand.
The Association of Investment Companies (AIC) also publishes detailed data about investment trusts currently on offer in the UK.
How else to invest in EM shares
Another way to increase your portfolio’s exposure to EMs would be to invest directly in high-quality foreign stocks in these countries.
But if you are new to investing or do not have the time to select individual companies internationally, then exchange-traded funds (ETFs) could be the way forward. ETFs are passive investments that may offer diversification over asset classes, industries, or global regions.
Two ETFs to consider could be the Vanguard FTSE Emerging Markets UCITS ETF or Invesco FTSE Emerging Markets High Dividend Low Volatility UCITS ETF.
