This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Emerging Markets May Drag Consumer Staples Lower

Stocks in this article: WMT PG KO EEM VDC

NEW YORK ( TheStreet)--Emerging markets stocks have had a rough 2013, as a period of underperformance that started in late 2010 has accelerated. Investors and analysts want to minimize the obvious impact this trend will have on consumer staples companies such as The Procter & Gamble Company (PG), Wal-Mart Stores, Inc. (WMT) and The Coca-Cola Company (KO).

In Wal-Mart's latest fiscal year, for example, international sales generated about 29% of the total--a figure it expects to rise in future years. Much of that total comes from developing countries. The company's largest presence outside the U.S. is in Mexico, where it has more than 2,000 stores. It is also the number two retailer in China, according to The Wall Street Journal. The retail giant began operating in China in 1996. It reaffirmed its growth plans for China earlier this year following reports it was scaling back. But the company's results don't provide much detail about individual markets, so investors can only take them at their word--until something changes.

Likewise, Coca Cola is anything but concerned at the moment about emerging markets sales. In its latest annual report, Coke said its emerging and developing markets segments "are recovering from the global recession at a quicker pace" than developed markets.

But the performance of emerging markets indices is telling a different story. Starting Sept. 24, 2010, iShares MSCI Emerging Markets Index (EEM), a popular emerging markets exchange-traded fund, had lost 13.92%, while the S&P 500 had gained about 45.71% over the same time period. Year to date, with the S&P up 14.11%, EEM is down more than 16%. There is some debate about whether this underperformance is driven by fears of higher interest rates in the U.S. or political unrest in emerging markets, as Deutsche Bank recently argued.

The underperformance of emerging markets indices isn't just a technical investing fluke. Street protests in Turkey and Brazil and a scary spike in the Chinese overnight lending rate June 20 have rattled investors. Annual GDP growth in China, India, Brazil, just to cite three examples, is at its lowest level in more than seven years.

On Friday, U.S. interest rates were clearly in the front of investors' minds, as strong June employment data pushed 10-year treasury yields to 2.72%--their highest levels in nearly two years. Emerging markets stocks fell, with EEM losing nearly 2% even as the S&P 500 gained slightly. Consumer staples stocks, however, were flat, as measured by Vanguard Consumer Staples ETF (VDC).

There may be other factors explaining the underperformance of consumer staples stocks on Friday. Indeed, the Vanguard ETF has outperformed the S&P both year to date and since Sept. 24, 2010. Still, since consumer staples stocks are so often touted as a safe way to play emerging markets stocks, emerging markets underperformance ought to catch up with these companies' results over time.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,685.80 +328.93 1.90%
S&P 500 2,049.14 +36.25 1.80%
NASDAQ 4,729.6280 +85.3160 1.84%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs