Emerging Markets Picks

Cash in by investing in companies that benefit from rising demand in their own domestic markets.

During the past decade, emerging markets truly emerged. If at the start of 2000 you had put $10,000 into Vanguard 500 Index (symbol VFINX), a mutual fund that tracks the stocks of large U.S. companies, you would have had $9,016 at the end of 2009. But if you’d invested $10,000 in Vanguard Emerging Markets Stock Index (VEIEX), your investment would have grown to $25,516.

Emerging-markets stocks are doing well because the economies of the countries where those companies are based are flourishing. The recession ended last year for most of the world, but the economies of developed nations still appear anemic. The Economist magazine projects that gross domestic product in Germany will grow just 1.6% in 2010; in Britain, the Netherlands and France, 1.3%; and in Japan, 1.5%. GDP in the U.S. is expected to grow 2.7%, but that is no great shakes coming out of a terrible recession. By contrast, The Economist forecasts that about two-thirds of the 21 Asian, Middle Eastern and Latin American economies it tracks will produce growth of at least 3%. It sees economic growth this year at 8.6% for China, 6.3% for India and 4.5% for Indonesia.

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.