House Republicans are steamrolling President Obama to submit three pending free-trade deals.
This is great news for the three key emerging markets involved.
That’s because free-trade agreements reduce duties and taxes on goods traded between countries. This means two things:
1) Lower prices in the checkout line, as these taxes are no longer passed along to consumers.
2) Importers and exporters earn more, as barriers to trade are reduced.
For example, in 2004 Chile signed a free-trade agreement with the U.S. In the first quarter following the deal, Chilean exports to the U.S. shot up 12.1% to $1.17 billion. Today, Chilean exports to the U.S. stand at $6.2 billion.
Today, free-trade agreements are in the works for Panama, Colombia and South Korea. And if the Chilean example is anything to go by, this could be a great time to add exposure to these three emerging markets.
Get Rich Opportunity #1 – Colombia
Over the past five years, Colombia’s economy has changed rapidly. Long gone are the days of terrorism and kidnappings by FARC rebels.
Today, the Colombian economy is booming, thanks in no small part to its commodities riches. Colombia is Latin America’s largest producer of coal and its third largest producer of crude oil (behind Brazil and Venezuela).
Foreign direct investment has also helped. It has grown fivefold since the Colombian government cracked down on FARC rebels in 2002.
Colombia’s GDP expanded by 4.3% last year. And Colombian finance minister Juan Carlos Echeverry forecasts growth to clock in at between 5% and 6% this year – exactly the kind of growth you need to seek out as an overseas investor.
One easy way to add exposure to Colombia is through the Global X/InterBolsa FTSE Colombia 20 ETF (NYSE:GXG). This gives you broad exposure to Colombia’s stock exchange, with a strong weighting toward the finance and energy sectors. Given GXG’s strong energy component, this should perform well as commodities continue to rally.
Key Emerging Market #2 – South Korea
South Korea is not really an emerging market. It has already “emerged.” But the country is well positioned to benefit from growth in Asia – especially in China.
China is South Korea’s top overseas market. And in addition to the free-trade deal with the U.S., a separate deal with China is expected to boost South Korea’s GDP by nearly 3%, according to Korean think tank the Samsung Economic Research Institute.
One way to invest directly into Korea is through the iShares MSCI South Korea Index (NYSE:EWY). Top holdings here are Samsung Electronics Co., Ltd. (17.43%), steelmaker Posco (5.13%) and Hyundai Motor Company Ltd. (4.71%).
The elephant in the room here is the ever-present threat of conflict with North Korea. Until the tension legitimately eases, this will act as a drag on stock prices.
Key Emerging Market #3 – Panama
International Living readers already know the perks of Panama as a retirement haven. But Panama is also a promising investment destination.
Panama’s economy ranked 20 in terms of global growth in 2010. With GDP expanding by 7.5%, it tied with powerhouse Brazil and came in just a little behind the better known emerging economies of India, Thailand and Peru.
Panama has established itself as an international business center with strong banking secrecy laws. As larger cash-strapped countries such as the U.S. squeeze more tax revenue out of citizens, Panama will look more attractive as a banking haven.
And with a free-trade agreement on the cards, Panama can expect more foreign investment.
There are currently no exchange-traded funds (ETFs) that allow you to invest directly in Panama. But there are two American Depository Receipts (stocks that trade in the U.S. but represent shares in an overseas company) that allow you to add exposure to Panama.
One of them is airline Copa Holdings, S.A (NYSE:CPA). The other is Banco Latinoamericano de Comercio Exterior S.A (NYSE:BLX).
Bladex, as it is known, is a trade finance bank. This means it mainly finances international transactions. Bladex’s performance has been far from stellar lately. But as Panama grows, it should see steady growth. Plus, BLX has an attractive dividend yield of 4.59%.