Last week, I was at an investor conference in Switzerland.
As is typical these days, one of the big topics was investing in the emerging markets.
A number of prominent fund managers from China and Russia were there. Along with managers of more general emerging market funds.
The audience was made up mostly of wealthy investors. And after the usual PowerPoint sessions, a hand popped up from the gathered crowd.
And the hand had a question…
“Is it useful to even talk about emerging markets versus developed markets anymore?”
“Many stocks in the so-called ‘developed’ world now get a big chunk of their revenues from the so-called ‘emerging’ world. And vice versa.
“Why are we still using these outdated distinctions?”
It was one of the best questions of the entire two-day event.
A Decade of Outsized Returns
Few doubt that the places we now call “emerging markets” – places such as India, China, Indonesia, Turkey, Russia and so on – have been great places to invest.
In just the past 10 years (from January 2001 to April 2011 to be precise) the MSCI Emerging Markets Index returned 360%. This tracks the performance of stocks in 21 emerging markets.
But times have changed since 2001.
A Blurring of the Lines
Today, the average exposure of S&P 500 companies to emerging market sales is 27%. Put another way, just under $1 in every $3 of sales of the 500 biggest U.S. blue chips on average comes from emerging markets.
This means that, even without knowing it, you likely have significant exposure to the emerging markets in a plain vanilla, U.S. equities-only portfolio.
In Europe, the level of exposure is even greater. On average European companies now get 32% of their revenues from sales to emerging economies. And Australian companies get an average of 30% of the revenues from emerging markets.
And importantly, this indirect exposure swings both ways.
Taiwanese companies, for instance, have on average 25% sales exposure to developed markets. India and Mexico have 20% on average sales exposure. Russia 15%. China 11%. And Brazil 6%.
So even if you only buy shares in companies that do business in the emerging world, you are getting significant exposure to the developed world – places such as the U.S., Europe, Japan and Australia.
How to Play It
The bottom line is the world is becoming increasingly globalized. And as this process continues, the distinction between “emerging” markets and “developed” markets becomes increasingly blurred.
If you are an investor with an appetite for global growth, you’ll probably have spotted opportunity here.
Because thanks to the level of indirect exposure to emerging markets carried by the average American blue chip…you don’t have to venture very far to add emerging market exposure to your portfolio.
In fact, you don’t have to leave the U.S. at all. You can simply buy U.S. blue chip names that have above-average exposure to the fast growth markets beyond America’s borders.
Four companies that have an above average exposure (relative to the S&P 500 Index as a whole) are chipmaker Intel Corporation (NASDAQ:INTC), cigarette maker Philip Morris International Inc. (NYSE:PM), The Coca-Cola Company (NYSE:KO) and Microsoft Corporation (NASDAQ:MSFT).
These companies are all solid blue chips with strong international brands with long histories of treating shareholders well. Consider adding them to your portfolio for their exposure to fast-growth overseas markets.
They have the best of both worlds – fast growing emerging and stable, developed markets.