STAN HONDA
Many strategists love the idea of investing in companies that have a high exposure to emerging economies, such as China and India. But here's a twist: UBS strategist Oliver Dettmann recommends investing in emerging economies that have a high exposure to the United States. In particular, he likes South Korea, Taiwan and Mexico.
Korea and Taiwan, which are far more developed than many of their emerging market peers, have strong industrial and technology sectors that link them closely to the U.S. economic recovery.
"Both markets are attractively valued," he said in a note. "Taiwan is trading at a price-to-earnings ratio of 13, based on 12-month forward earnings estimates, whereas Korea is trading at just 10 times forward earnings. We expect both markets to outperform due to favorable export dynamics and re-rating potential on the back of low valuation."
Meanwhile, Mexico is home to a number of highly cyclical companies, particularly in manufacturing, that also give it exposure to the U.S. economy. With the low valuation of Mexican stocks, Mr. Dettmann now recommends Mexico as the "preferred" market in Latin America, while Brazil gets downgraded to "neutral" due to expected interest rate hikes there.
David Berman