The year 2022 has been quite eventful for emerging market investors. The severity of COVID-19 lessened despite the occurrence and emergence of new virus variants, getting global equity market investment across all essential and non-essential sectors back to life.
But the emerging market investing trend is not out of the woods yet given
China
’s zero-COVID-induced aggressive lockdown through a major part of 2022. However, the latest monetary roadmap of China points to a number of economic stimuli in 2023, which according to market watchers are sufficient for a bull investment run in the coming months.
As 2022 draws to a close, let’s take a closer look at how the emerging market scenario has been so far this year and its probable status in 2023. Here we present five emerging market stocks,
JD.com
JD
,
Sigma Lithium Corporation
SGML
,
Dr. Reddys Laboratories
RDY
,
MakeMyTrip Limited
MMYT
and
Coupang, Inc.
CPNG
that are expected to gain enormously in 2023 capitalizing on their growth prospects.
Status of Other Major Emerging Nations
The worldwide economic slowdown due to Russia’s aggression, which resulted in a record rise in energy prices, deteriorating international trade and global inflationary pressure leading to an extremely tough situation related to raw material and labor cost as well as freight charges, has put the overall emerging market scenario in a tight spot again. To survive the economic downturn, the tightened monetary policies across major economies are starkly altering consumer preferences and once again, demand for the non-essential category line of businesses is on the back foot.
While the largest emerging market economy is showing signs of revival,
India
, which claimed the title of the fastest-growing major economy in 2022, is about to lose its glory in 2023. The country’s tightening monetary policy and reduction in pandemic-tempted benefits are expected to dent its 2023 economic growth significantly. Goldman Sacs recently reduced India’s GDP growth estimate to 5.9% for 2023 from the earlier expectation of 6.9%.
Meanwhile, following the global economic slowdown,
Brazil
’s economic ministry in November, announced a cut in its 2023 GDP growth forecast to 2.1%, from 2.5% announced in September. A Reuters report meanwhile claims that private economists in a Brazilian central bank weekly survey projected that gross domestic product would grow a mere 0.7% in Latin America’s largest economy in 2023.
Even amid the war,
Russia
, managed a raise in its economic growth projections by IMF for 2023. Per IMF’s October-released report, it has raised its projections for Russia and now expects Russian GDP to contract by only 2.3% in 2023 (from 3.5% as per July forecast). However, many economists are not that hopeful and expect the record hike in commodity price combined with stringent monetary policy in other economies to continue to put pressure on Russia’s GDP through the next decade.
In
South Africa
, another significant emerging economy, the situation has been quite difficult over the pandemic-battered years, thanks to a record level of unemployment and spending pressure. The current global economic downturn might have worsened the situation further. Going by a Deloitte Insight report of December 2022, against the backdrop of key advanced economies possibly entering into a recession and with the International Monetary Fund (IMF) downgrading global growth expectations, South Africa’s 2023 GDP growth expectations for 2023 have moderated to 1.4% (from 1.6% expected earlier).
Potential Tailwinds for a Rebound in 2023
The backdrop undoubtedly seems quite gloomy for an investor to get motivated into investing in emerging market stocks. However, compared with the global economy, this market has quite a few catalysts for turning the tables any time soon. Let’s delve deeper.
First of all, it is quite imminent that with rising inflation and changing consumption patterns, the demand for commodities will likely soften all over the world. However, at the same time, international trade relationships might improve across developed and emerging nations and the supply chain bottleneck might finally get resolved, especially in the area of port congestion. More specifically, Sea-Intelligence reported in October 2022 that 50% of congestion issues have been or are being resolved (USC Consulting Group report). This might significantly improve the trade relationship between the United States and major emerging nations.
Added to this, over the past several months of market volatility, the strengthening of the U.S. dollar hit emerging market currencies hard. The extreme relative dollar strength has led to a significant trade imbalance across the globe, with emerging market investors’ profit margins getting slashed by a huge margin. However, thanks to the Fed’s latest decision of moderation in the rate hike in 2023, the U.S. dollar has nosedived. Also, outside the United States, relative economic growth has gradually changed the situation in favor of the emerging nations. Added to this, going by a Morgan Stanley report, as the dollar potentially weakens, commodity exporters, such as countries in Latin America, could see commodity prices strengthening due to greater global demand.
Our Choices
Amid the chances of potential recovery, adding stocks from emerging countries is a prudent step. We have narrowed our search to the following five stocks based on a favorable Zacks Rank and solid metrics for the upcoming period. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
JD.com
: Headquartered in Beijing, JD.com is a leading supply chain-based technology and service provider. Despite the COVID-led multiple headwinds leading to a profound change in consumption patterns, JD.com has been able to consistently outperform the industry based on stronger control across its supply chains and entire business processes.
JD.com carries a Zacks Rank #1 currently. Its 2023 sales and earnings growth rates are pegged at 12.5% and 31.6%, respectively. In terms of forward-12-month P/E, JD.com is trading at a discount of 23.5X compared with the industry’s 92.2X.
Sigma Lithium
: Brazil-based Sigma Lithium engages in the exploration and development of lithium deposits in the country. It holds 100% interest in the Grota do Cirilo, Genipapo, Santa Clara, and São José properties, comprising 27 mineral rights covering an area of approximately 191 square kilometers located in the Araçuaí and Itinga regions of the state of Minas Gerais, Brazil. Recently, the company successfully commissioned the first module of the Phase 1 production plant (the Greentech Plant) on schedule and within budget.
Sigma Lithium carries a Zacks Rank #2 (Buy). Its 2023 earnings growth rate is pegged at 15.4%. Year-to-date, the stock has improved 188.1% compared to a 39.4% decline of the industry.
Dr. Reddy’s
: Headquartered in Hyderabad, India, this is an integrated global pharmaceutical company engaged in providing affordable and innovative medicines. Dr. Reddy’s enjoys a strong position in the generics market. Dr. Reddy’s has already expanded its biosimilars facility in India to meet the growing demand in emerging markets.
This Zacks Rank #1 stock holds significant prospects for 2023 with sales and earnings growth projected to be 8.9% and 11.3% respectively. Year to date, the stock has declined 18.8% compared with a 31% decline of the industry.
Dr. Reddy’s Laboratories Ltd Price
Dr. Reddy’s Laboratories Ltd price
|
Dr. Reddy’s Laboratories Ltd Quote
MakeMyTrip
: This India-based online travel company owns brands, including MakeMyTrip, Goibibo and redBus. MakeMyTrip sells travel products and solutions in India, the United States, Singapore, Malaysia, Thailand, the United Arab Emirates, Peru, Colombia, Vietnam, and Indonesia. The company operates through three segments: Air Ticketing, Hotels and Packages, and Bus Ticketing.
MakeMyTrip carries a Zacks Rank #2. Its fiscal 2023 (ending March 2023) sales and earnings growth rate is pegged at 77.7% and 25%, respectively.
Coupang
: Seol, South Korea-based Coupang is one of the largest e-commerce companies in Asia. Bolstered by the broader retail market tailwind in Korea, Coupang’s total product commerce segment grew 10% year over year in the third quarter of 2022.
Coupang carries a Zacks Rank #2. Its 2022 sales and earnings growth rate is pegged at 13.9% and 538%, respectively. In terms of forward-12-month P/S, Coupang is trading at a discount of 1.2X compared with the S&P 500 Index’s 3.3X.
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