This Day On The Street
Continue to site
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

How Volatility in Emerging Markets Could Dent Big U.S. Stocks

NEW YORK (The Street) -- What do McDonald's (MCD - Get Report), Coca-Cola (KO - Get Report), Philip Morris (PM) and PepsiCo (PEP) have in common aside (ahem) from being champions for good health? All have sizable emerging markets exposure, an asset class that has roiled world equities this year, with expectations of more volatility to come.

Fund managers cautioned investors to be aware of this risk, even if they do not advocate a selloff of vulnerable stocks.

Wells Fargo Funds Management chief equity strategist John Manley pointed to consumer staples as an exposed sector. "Emerging markets are viewed as the largest part of the growth potential for these stocks," he said in a phone interview. "It's a risk, but it's not enormous."

Manley also pointed to the exposure of large U.S. banks, noting they tend to place larger bets in emerging markets amid a slower growth trajectory for developed nations.

Must Read: Downgrade Alone Won't Kill an Emerging Market

Citigroup (C) this week received subpoenas from the Federal Deposit Insurance Corp. and U.S. prosecutors after disclosing allegedly fraudulent billing at its Mexico arm that cost it up to $400 million. The bank also has investments in Ukraine and Russia, with around $10.3 billion in net exposure to Russia, the highest among major U.S. banks, according to analysis from Royal Bank of Canada. 

The energy sector has large multinational exposure, with Chevron (CVX) this week being forced to boost its staff security in Ukraine's shale fields. Royal Dutch Shell (RDS.A) and Exxon Mobil(XOM) drill for oil and gas in Russia while Siemens (SI) had plans to build rail infrastructure in Ukraine.

In the tech sector, Russia's largest search engine operator is listed on the Nasdaq. Yandex (YNDX) shed more than 14% on Monday as tensions with the Ukraine heightened and has since regained more than 7%. But daily volatility is perhaps of little concern to its investors given the stock has rocketed 42.5% over the past year, a lesson in placing stock fundamentals above macroeconomic moves.

The increase in earnings volatility for widely held defensive names like Procter & Gamble (PG) and Colgate-Palmolive (CL) is also likely to lead to a de-rating for these stocks, Macquarie's global head of research John O'Connell warned clients.

"U.S. and European stocks with high emerging market exposure are likely to underperform as they face the double whammy of slower growth and negative currency effects," he said.

O'Connell suggested that select global luxury brand names would also be crimped by slower spending growth and foreign exchange risks from emerging markets. "The group had performed strongly since 2008, but is unlikely to surprise on the upside given the corruption crackdown in China. Key names include LVMH, Hermes and Prada," he said.

Despite the risks, Manley does not advocate selling stocks on the basis of emerging market exposure alone. "We'll see some volatility but I ask whether there's a reasonable chance of selling and buying (these) stocks back at a better price, and the answer's 'no'," he said.


- Written by Jane Searle in New York

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
KO $42.02 0.00%
MCD $102.76 0.00%
AAPL $112.12 0.00%
FB $93.24 0.00%
GOOG $643.61 0.00%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs