Take Advantage of Market Extremes

With US Large Cap Stocks becoming more overvalued seemingly every day, long term investors can can profits in what is dear and redeploy to growth areas which are overlooked.

Emerging Markets are the place to be.

The extreme valuation differences between emerging markets and US markets have continued for years. My investment plan for my retirement accounts remains the same. I am underweight US equities and overweight emerging markets. Fortunately with dollar cost averaging into emerging markets I expect within the next decade this investing strategy will be a huge winner.

US stock market valuations can only stretch so far before disaster strikes. The difference with emerging markets like China and India is their economies still have relatively fast growth potential ahead of them as more citizens move up into the middle class life style.

With limited mutual fund options in my companies 401k I have been dollar cost averaging into Invesco Oppenheimer Developing Markets Fund. For self directed investors you have more options including other mutual funds, exchange traded funds or even individual foreign equities.

At the moment I have been using my Roth IRA for adding exposure to commodity markets such as companies involved in copper and gold. However as I continue to research individual foreign equities I will being to add exposure to emerging markets as well.

Below I will briefly discuss a China based company and an India based company.

GreenTree Hospitality (GHG) is the McDonald's of China's hotel industry. Much of McDonald's long term success was the ability to rapidly expand using the franchise model. This allowed McDonald's to grow with little of its own capital.

At the end of 2019 GreenTree has a network of over 3900 hotels with about 290,000 rooms. They are the fourth-largest hotel manager and operator in China. They are a best in class operator with an average occupancy rate of 81% verse 50% for the competition.

The company is experiencing exponential growth through franchising with about 99% of hotels franchised and managed.

One growth opportunity in India is bring electrical power to the rapidly growing middle class. India is expected to have 750 million middle class citizens by 2025 up seven times its current number.

This company is helping the newly middle class achieve a new standard of electrical power. Azure Power (AZRE) is a $1 billion developer of Indian solar-panel installations. In the most recent quarter sales have grown 16% year over year to $52 million. Pollution and lack of power remain a concern for many in India providing plenty of growth opportunities for Azure Power to capitalize on.

What are your favorite emerging market companies?

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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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