The stock market is becoming one huge sphere of unified players as the world continues to become more connected through globalization. A couple of decades ago, investing in foreign markets would have required a great deal of travel, but that has since changed. In today’s markets, one can invest in Chinese stocks, Indian stocks and Brazilian stocks without having to leave their home.
This has allowed investors to diversify their investments by investing in the highly liquid U.S. and Western European markets as well as high-growth markets in Southeast Asia and Latin America, among others.
While global market accessibility has improved over the past several decades, analysts maintain that identifying the best stocks and instruments to invest in these foreign high-growth markets may require localized expertise.
Stock indexes around the world appear to be at historical highs. Both the SPDR S&P 500 (SPY, Financial), Nasdaq Composite and the Dow Jones Industrial Average continue to break records as markets maintain their bullish outlook.
However, some analysts have warned against riding the market rally as the immediate future of global economic growth continues to pose fundamental questions.
Japan’s Nikkei 225 Stock Average Index is at multiyear highs, mirroring the trend in the U.S. stock market. However, China’s Shanghai Stock Index is down nearly 37% from its June 2015 high of over 5,100 points while Korea’s Hang Seng Index is just hovering below its 2007 high of 30,000 points.
This picture tells an interesting story for those interested in investing in the emerging and frontier markets. According to InvestAsian, an investment services consultancy firm that focuses on the Asian market, Southeast Asia, which covers Singapore, Malaysia and Indonesia, among other nations, presents investors with some of the best opportunities for investing in the frontier markets.
Some of these countries have the best characteristics for a growing market, including increasing urbanization, rising populations and a stable geopolitical environment. As I mentioned in one of my previous articles, “With urbanization, opportunities are ripe in real estate investments, the renewable energy market and the construction industry while rising population creates a market for goods and services, cheap labor and opportunities in the education sector.”
As such, even as global markets continue to rally, opportunities in the frontier markets might still be abundant. It is hard to think the same regarding the U.S. and Western European markets, where there is little room for growth as the markets are already fully developed.
One positive that can be taken from developed markets, though, is the risk is low, as demonstrated by the DJIA curve below, which, unlike the Nikkei 225 Index curve, is smoother with fewer pullbacks since the start of the year.
Several analysts have indicated there could be a market correction soon. This might not come as a surprise to investors given the rally we have experienced in the U.S. markets over the past couple of years.
While a market rally is not always necessarily followed by a correction, mixed economic data from leading global economy rating agencies and government institutions suggest there is not enough fundamental shift to support the current rally.
Therefore, it makes sense to prepare for a potential market correction in the foreseeable future. However, for those looking to diversify their investments in the developed market by investing in high-growth markets—the frontier markets in Southeast Asia and Latin America might be a good place to start.
Conclusion
While the U.S. economy remains strong and bullish going forward, the current market valuation seems to be over the top. Some analysts have blamed the impact of bitcoin prices for the current market conditions. In a recent interview, legendary investor Warren Buffett (Trades, Portfolio) warned investors that bitcoin is a “real bubble” that could burst at any time. If this reality comes to fruition, then we could be in big trouble.
Disclosure: No position in any securities mentioned in this article.
