Often, growth investors might seek out shares that have exposure to emerging markets — those globally that have higher growth potential, but that also bring a higher rate of volatility as a consequence.
Here, a handful of our Foolish contractors identify one such listed company that they rate highly!
Ashmore Group
What it does: Ashmore is a specialist emerging markets asset manager with over 30 years of experience in these markets.
By G A Chester. Ashmore Group (LSE: ASHM) runs a range of emerging markets funds. These include equities, government and corporate bonds, and ‘alternatives’, such as infrastructure.
I like asset managers generally, because they’re essentially geared plays on the markets they invest in. If the company and its funds are competently managed, shareholders should enjoy a double turbo-charge to profits from inflows into the funds and the rising value of the assets the funds own.
This can work against the company’s shareholders in periods when markets fall and there tend to be fund outflows. As such, phases of volatility are one of the risks in owning shares in asset managers. Ashmore can be particularly impacted, simply because emerging markets are generally more volatile than others.
Nevertheless, for investors with a high conviction in the long-term growth prospects of emerging economies, Ashmore represents a geared play, available at a currently unloved share price.
G A Chester does not own shares in Ashmore.
ICICI Bank
What it does: ICICI Bank is an Indian multinational that provides financial services for corporate and retail customers.
By Charlie Carman. The IMF expects India will be the fastest-growing major economy this year. ICICI Bank (NYSE:IBN) can benefit from this trend as the country’s second-largest private lender.
That said, the stock recently touched an all-time high. With a price-to-earnings ratio above 19, it isn’t cheap. There’s a risk the growth potential is already priced in. However, I think the shares could continue to rise if the bank keeps delivering excellent results.
In Q1 FY23-24, the Mumbai-based lender posted a 39.7% net profit increase to $1.18bn. This was accompanied by a 38% rise in net interest income. These figures beat analysts’ expectations. Encouragingly, loan growth in India remains in double digits despite rising interest rates.
In addition, Prime Minister Narendra Modi is implementing policies to liberalise the country’s financial services, building on a process initiated in the 1990s. I wouldn’t be surprised if ICICI Bank continues to rally while India’s economy booms.
Charlie Carman does not own shares in ICICI Bank.
Inchcape
What it does: Inchcape is an automotive distributor that provides outsourced services to car manufacturers in smaller markets.
By Roland Head. Car distribution group Inchcape (LSE: INCH) is known for its UK dealerships, but these are only a small part of its business.
About 90% of profit comes from the group’s global distribution business. Inchcape’s largest market is Latin America, which generates half the group’s profits. The company also operates in Africa and Asia, as well as Europe.
I think this business should be a good way to profit from economic growth in emerging markets. I’d expect the group’s geographic reach to provide some protection from regional downturns, although I can’t be sure of this — cyclicality is a risk.
Another concern is that the company could lose key contracts or fail to adapt to changes such as electric-vehicle adoption.
Even so, I think Inchcape looks good value at the moment. Recent trading has been stable, and the stock is trading on just nine times forecast earnings, with a 4% dividend yield.
Roland Head owns shares in Inchcape.
MercadoLibre
What it does: MercadoLibre operates a digital payments business as well as the largest e-commerce marketplace in Latin America.
By Ben McPoland. MercadoLibre (NASDAQ: MELI) is a leader in some exciting high-growth areas across a number of emerging Latin American markets. They include e-commerce, shipping logistics, digital payments, and consumer credit. These are all intricately tied together, creating a strong network effect.
Today, its biggest markets are Mexico, Brazil and Argentina — all countries where the digital economy is set to grow for decades.
In 2022, revenue at MercadoPago, its payments business, doubled year on year. Millions across the region now use this to pay, receive, borrow, lend and invest. Processing north of $100bn in annual payments, it has rapidly become the leading fintech platform of the whole continent.
MercadoLibre generated net revenue of $10.5bn last year, with net profit exploding to $482m from $83m in 2021. That’s a 479% increase!
Of course, the firm’s growing presence in digital banking exposes it to credit defaults as the global economy weakens. So this is worth monitoring.
Nevertheless, I increasingly see MercadoLibre as a company for the ages. Its executives think in decades, which aligns with my own long-term (Foolish!) investing philosophy.
Ben McPoland owns shares in MercadoLibre.
