A day doesn’t go by when another large asset management firm discusses why they are abandoning China for other international stock picks. The reality is that China stocks are out, but you should still consider stocks from other foreign countries.
On Jan. 20, Bloomberg reported that Vontobel Asset Management—the Zurich-based asset manager had assets under management of 207 billion Swiss francs ($239 billion) at the end of October—selling its China holdings and moving this cash into other emerging markets such as Brazil, India, and Mexico.
“We are taking some of the capital we used to allocate to China and reallocating to Brazil, Mexico and India,” Bloomberg noted portfolio manager Ramiz Chelat’s comments. “These countries offer a selection of attractive growth companies which are getting earnings upgrades. In China, we are seeing the reverse: consistent downgrades.”
Since China stocks are out, the asset manager is especially bullish about Brazilian stocks. It is still overweight in India and Mexico, while underweight in China by 745 basis points, more than double a year ago.
In 2023, I recommended stocks from each of these countries. All three make excellent places to invest outside the United States
Here are my three picks, one from each country.
Raia Drogasil (RADLY)
Not only is Vontobel high on Raia Drogasil (OTCMKTS:RADLY), the largest drugstore chain in Brazil, but so am I, recommending the Brazil company twice last year.
The first time was in January 2023. It was one of three picks for the best South American stocks to buy in 2023. The second time was in December. Again, it was part of a Latin American theme for buying stocks in 2024.
“The company has the best logistics network in its class and is a defensive-sector bet as Brazil has an aging population. But it is also a growth company as it is successfully transitioning to an e-commerce model,” Chelat said about Raia Drogasil.
As I pointed out in December, the company controls just 15% of the drugstore market in Brazil. Investors can expect it to be a consolidator in the years ahead.
In Q3 2023, its revenues grew by more than 16% on the strength of its e-commerce business, which saw sales increase by 51% over Q3 2022, while net income rose 33% over the same period last year.
I also like that the founding families still own 28% of the company, providing long-term stability as it grows the business.
HDFC Bank (HDB)
HDFC Bank (NYSE:HDB) is one of India’s largest private lenders, with 8,091 branches as of Dec. 31, 2023, 908 higher than a year earlier. On July 1, 2023, HDFC Bank completed its $40 billion merger with Housing Development Finance Corporation (HDFC), India’s largest mortgage provider.
The mortgage lender’s shareholders received 42 HDFC Bank shares for every 25 held in the Housing Development Finance Corporation. The merger made HDFC Bank the world’s fourth-largest bank.
A significant rationale for the merger was cross-selling opportunities. Approximately 70% of the mortgage lenders’ customers didn’t have a bank account with HDFC Bank, while only 2% of HDFC Bank’s 71 million customers had a mortgage with HDFC.
Shortly after the merger, HDFC Bank replaced HDFC on the MSCI Emerging Market Index.
“It was always a non-index bet, but despite that investors felt comfortable owning it. Being part of the index is now going to really positively bring many more new investors into HDFC Bank,” CNBC reported comments by Nilesh Shah, managing director at Kotak Mahindra Asset Management.
HDB stock has lost nearly 18% of its value in 2024. Investors weren’t impressed with the bank’s Q3 2024 results on Jan. 16. The results seemed fine. Its standalone net revenue grew 25.8% over Q3 2023, with a net interest margin of 3.4% and a CET1 ratio of 16.3%.
As India’s economy continues to grow, HDFC Bank stock should ride this growth higher.
Femsa (FMX)
I wrote about three stocks to buy for the coming Mexico boom in September. Femsa (NYSE:FMX) was one of those stocks. Its history dates back to 1890.
Today, its major operations include more than 22,352 OXXO convenience stores and gas stations, along with a 47.2% interest (56% of the votes) in Coca-Cola FEMSA (NYSE:KOF), the world’s largest Coca-Cola (NYSE:KO) bottler by sales volume. In addition to these two businesses, it owns 4,347 drug stores in Mexico (1,710) and South America (2,637) and a logistics business that provides solutions to other Mexican and Latin American companies.
In the first nine months of 2023, Femsa’s revenue was 539.1 billion Mexican pesos ($31.47 billion), 10.9% higher than a year earlier, while its operating income was 44.0 billion Mexican pesos ($2.57 billion), 6.6% higher year-over-year. As of Sept. 30, 2023, it had a net debt of $3.33 billion, just 7.3% of its market capitalization.
I’ve always liked the family-controlled aspect of Femsa. The founding families control nearly 75% of the company’s voting shares and hold almost 39% of its stock. Bill Gates owns nearly 8% of the company’s stock, making the billionaire its second-largest shareholder.
Of the 15 analysts covering FMX stock, 60% rate it a “Buy.”
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
