Mercer Recommends Buying US Shares for Exposure to Emerging Markets

Investing in emerging markets can be a lucrative opportunity for many investors, but it can also come with its fair share of risks. Mercer LLC, a renowned investment consultant, has some interesting advice for smaller investors looking to dip their toes into emerging markets: buy shares in US companies.

According to Mercer, while larger funds may find attractive opportunities in areas like private equity and frontier-market infrastructure in emerging markets, retail investors are better off sticking to global indexes led by the US. This recommendation comes as emerging market stocks continue to underperform their US counterparts, with the MSCI index for developing nations losing almost 2% so far in 2024 compared to a more than 4% gain for the S&P 500.

Rich Nuzum, executive director and chief investment strategist at Mercer, emphasizes the benefits of investing in global multinationals like Apple, Nvidia, Coca Cola, and pharmaceutical companies. These companies may be headquartered in the US, but they generate a significant portion of their revenue from emerging markets. By investing in these companies, retail investors can gain exposure to the underlying GDP growth and favorable demographics of emerging markets.

Interestingly, Mercer’s recommendation mirrors the strategy of Lewis Kaufman, whose Artisan Developing World Fund has invested more than 40% in US stocks and is technically the best-performing emerging market stock fund in the world. While Kaufman’s approach may not be suitable for larger, strategic funds, it is a viable option for retail investors looking to capitalize on future emerging-market growth.

However, it’s important to note that this strategy has its limitations and may not be suitable for all investors. For those looking to build exposure in specific emerging economies like Vietnam or China, alternative investment vehicles like private equity venture capital or opportunistic real estate may be more appropriate.

Overall, Mercer remains bullish on China and sees immense potential in private market investments in emerging and frontier markets. As global multinationals diversify their supply chains away from China, there could be significant opportunities for investors in these markets.

In conclusion, while investing in emerging markets can be rewarding, it’s crucial for investors to carefully evaluate their risk tolerance and investment goals before diving in. By following the advice of trusted experts like Mercer and staying informed about market trends, investors can make informed decisions that align with their financial objectives.