The winds of change are blowing in emerging markets
Despite recent crosscurrents, emerging-markets stocks offer compelling prospects for those willing to navigate their complexity, according to Fidelity's Greg Lee, particularly in Brazil and China.
- Emerging-markets equities could benefit from corporate earnings momentum, monetary policy stimulus in China that surpasses expectations — potentially in response to higher tariffs imposed by the U.S. — and global economic acceleration driven by central bank easing, according to Fidelity Portfolio Manager Greg Lee.
- "Even in the absence of these drivers, my research reveals an abundance of country-, industry- and security-specific opportunities in this diverse segment of the equity market," says Lee, who manages Fidelity Advisor® Emerging Markets Discovery Fund.
- In helming the international equity strategy, Lee focuses on smaller-capitalization companies exposed to the secular-growth trends of ascendant emerging economies, and favors quality businesses that are undervalued.
- Based on this approach, Lee says he is especially positive on Brazil, the fund's top country overweight as of April 30.
- "One key factor influencing Brazil's market is its currency," Lee explains. "Although the nation's central bank has cut interest rates, inflation has risen, weighing on the real, yet I believe that future interest-rate cuts by the U.S. Federal Reserve could help alleviate this pressure, potentially unlocking significant value in Brazilian equities."
- One fund holding that exemplifies his optimism is Lojas Renner, the country's largest apparel retailer, which he likes for its strong track record of returning capital to shareholders.
- "China is another focal point for me, but it presents a complex picture," Lee says. "Although the escalating trade war with the U.S. threatens demand for many Chinese exporters, I believe the government may support the overall economy by stimulating domestic consumption."
- While still finding value in the market, Lee is being a bit more selective in where he looks for opportunities, especially among those companies that are more oriented toward domestic demand. Volatile markets can create more potential for assets to be mispriced, and he continues to look for opportunities to buy strong, well-positioned businesses at attractive prices.
- Among the portfolio's top holdings at the end of April were marine shipping services company SITC International Holdings and Sinopec Engineering, which is engaged in oil refining and chemicals.
- Looking longer term, Lee believes the investment opportunity in emerging markets remains attractive: "By definition, these are high-growth economies brimming with many interesting and undiscovered investment opportunities, particularly among small- and mid-cap stocks. Furthermore, I believe our research team is uniquely suited to help me capitalize on them."
Fidelity Advisor Emerging Markets Discovery Fund (FEDIX)
Seeks to provide growth.
Related insights
View all
For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.