Emerging markets stocks are shares of companies based in developing countries – think Brazil, India, China, or South Africa – that are rapidly industrializing and growing their economies. Unlike the familiar and more predictable world of US stocks, emerging markets offer something quite different: higher growth potential coupled with greater volatility, influenced by unique local dynamics such as political shifts, currency swings, and evolving regulations. Why venture into these turbulent waters? Because with higher risk comes the potential for higher rewards. These markets often grow faster than mature economies, making them especially attractive if you’re looking to diversify beyond the stability (and sometimes slower pace) of US equities. Also, exposure to the best emerging markets stocks would not only boost the return profile of a portfolio, but also make it less volatile through diversification – many emerging markets exhibit little to no sensitivity to the state of the economy in the US, meaning that their national economy could continue to grow even when the US is in a recession.
Timing matters, especially when diving into emerging markets stocks. Investing in these companies makes the most sense when global economic conditions are improving, investor sentiment is optimistic, and local political or financial uncertainties are settling down. It’s particularly appealing if you’re a patient investor who can withstand short-term volatility for potentially bigger long-term gains. Additionally, when valuations in developed markets like the US are stretched and growth appears limited, emerging markets stocks can offer a refreshing alternative, giving your portfolio both growth exposure and geographical diversification.
The current tendencies we see in the global markets are highly suggestive that a potential rotation from US stocks to emerging markets stocks would be the right move to make. Despite the US market being in correction mode, valuations still appear stretched, as the whole market trades at a forward P/E above 20x, significantly above the historical average, which is around the mid-teens. This is the first factor that points toward the possibility that US stock market returns will be lower until the end of the decade due to the impact of declining valuations (or, call it a return to more normal valuations). Second, the new Trump 2.0 administration introduced a lot of noise into the US economy – the Atlanta Fed has already lowered its GDP growth estimates for the following quarters as a result of significant cuts in public spending as well as the tariff threats negatively impacting the private spending outlook. This expected economic slowdown is exclusive to the US market, while emerging markets may continue to grow their economies at a usual pace.
Finally, the potential impact of the upcoming reciprocal tariffs on April 2 is still not completely understood by the markets. What is certain is that the tariff threats have already caused inflation in some products, such as construction materials, copper, and other commodities, as businesses rushed to stockpile raw materials and inventories at cheaper prices before tariffs were enforced. Higher inflation, especially in core products like housing, is not good for the economy, as it pressures consumers and erodes their spending power. Higher inflation may also reduce the chances that the FED will lower interest rates any time soon, which is another impediment to economic growth. The key takeaway for readers is that the aforementioned headwinds and threats are mostly exclusive to the US market, while most of the emerging markets are likely to be impacted much less.
Is Vale S.A. (VALE) the Best Emerging Markets Stock to Buy According to Hedge Funds?
Aerial view of a giant iron ore mine, showcasing the mineral deposits of the company's Ferrous Minerals segment.
Our Methodology
We shortlisted 20-30 emerging markets stocks that are based in and derive most of their revenue from emerging countries. Then we compared the list with our proprietary database of hedge funds’ ownership and included in the article the top 10 stocks with the largest number of hedge funds owning the stock as of Q4 2024. All stocks are ranked in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Vale S.A. (NYSE:VALE) is a Brazilian multinational mining company and one of the world’s largest producers of iron ore and nickel. Headquartered in Rio de Janeiro, VALE’s operations encompass the extraction and production of iron ore, pellets, nickel, manganese, copper, and coal. The company also manages extensive logistics systems, including railroads, maritime terminals, and ports, facilitating the efficient transportation of its products.
Vale S.A. (NYSE:VALE) delivered a strong operational performance in 2024, achieving its highest iron ore production since 2018 at 328 million tons, exceeding original guidance. The company demonstrated cost efficiency with iron ore C1 cash costs reaching $18.8 per ton in Q4, the lowest level since 2022. VALE successfully completed key projects, including the start-up of Vargem Grande and Capanema ahead of schedule, adding 30 million tons of low-cost production capacity. In base metals, the company achieved its highest copper production since 2020, with Salobo producing approximately 200 kilotons of copper in 2024.
The Board approved $2 billion in dividends and interest on capital, resulting in an annualized 10% yield, along with a new buyback program for up to 3% of outstanding shares. Vale S.A. (NYSE:VALE) also announced the new Carajás initiative, focusing on accelerating the development of critical minerals in one of the world’s best provinces. The company also maintained strong progress on safety and environmental commitments, achieving 57% completion of the Upstream Dams Decharacterization program and expecting no dams at Level 3 by the end of 2025. With such strong momentum and plenty of growth opportunities from new projects, VALE is one of the best emerging markets stocks to buy.
Overall VALE ranks 7th on our list of the 10 best emerging markets stocks to buy according to hedge funds. While we acknowledge the potential of VALE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VALE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
