Emerging-Market Stocks: Great Businesses Hide in a Murky Market Landscape

Sour sentiment toward emerging-market stocks is obscuring uncommon opportunities for equity investors.

Emerging-market (EM) equities are still struggling. But weak investor sentiment may be creating a favorable backdrop for stock pickers. With the right mindset, investors can discover promising EM businesses that aren’t tethered to the fortunes of developing-world economies or markets.

There’s no shortage of unsettling EM news these days. China is coping with lackluster economic growth. Recent elections in India, South Africa, Mexico and Argentina could lead to policy changes. Geopolitical risk is elevated as war rages from Ukraine to the Middle East. It’s a lot of uncertainty to stomach.

But it’s a very different story for many EM companies. While their stocks might get tarred by the same EM brush, plenty of developing-world businesses have bright prospects, have solid earnings growth and don’t rely on the Chinese economy. Some familiar storylines can help lead investors to opportunities in stocks with pent-up return potential.