NEW YORK (TheStreet) -- Emerging market equities may present one of the best opportunities for investors looking to take advantage of rising oil prices and a weakening dollar, according to investment strategists.
"Any investor who has the view that the dollar will go down in real terms must effectively sell the dollar and buy non-dollar denominated assets," said Nicholas Smithie, UBS global emerging market strategist, at a luncheon hosted by UBS and the New York Society of Security Analysts this week. "So, international, global and emerging market equities will have that effect. You will diversify out of the dollar if you buy international, global and more emerging market equities."
"For those who have a positive view on oil, frontier markets correlate to oil rather than to global equities." And "within the emerging markets, Russia and Russian oil companies are highly correlated to oil," he said.
The Vanguard MSCI Emerging Markets ETF (VWO) and WisdomTree Emerging Markets Equity Income Fund (DEM) are examples of mutual funds that provide diverse exposure to emerging markets equities, while the Market Vectors Russia ETF ( RSX ) is an example of a fund the offers exposure specifically to Russian equities.Individual stocks with strong emerging markets exposure include sports apparel company Nike (NKE), Brasil Foods (BRFS), Chinese Internet search provider Baidu.com (BIDU) and Latin American wireless communications company America Movil (AMX). Smithie recommends that retail investors avoid buying single, emerging market stocks because that would deprive them of the protection derived from diversification. Mutual funds would be preferable, giving them a pool of collective diversification at a relatively low cost, says Smithie. Kate Moore, Bank of America Merrill Lynch's global equity strategist, told TheStreet, following her company's outlook conference this week, that her investor client base still has a "big home country bias," where 80% of their equity holdings are in U.S. stocks. "One of the biggest messages we can give to private clients at this point is when you're considering increasing your equities, make sure you look outside of the U.S. There are outstanding, high-quality, high-growth global companies that they can still buy easily as a U.S.-based investor." Many of these companies have American Depositary Receipts that can be bought in baskets. Emerging markets will continue to show good growth through 2012, according to the International Monetary Fund. An IMF report projects growth in sub-Saharan Africa at 5.5% in 2011 and 5.75% in 2012. Growth in developing economies in 2011 and 2012 is expected to remain "buoyant" at 6.5%, a modest slowdown from the 7% growth registered last year and broadly unchanged from the IMF's Oct. 2010 outlook. Activity in advanced economies is projected to expand by 2.5% in 2011 and 2012, which the IMF said is still sluggish considering the depth of the 2009 recession, and insufficient to create a significant dent in high unemployment rates.
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