Emerging markets stocks with a host of tailwinds are poised to outperform U.S. equities

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OPINION: Emerging market stocks will outperform domestic ones this year and beyond. Here are the reasons and investing tactics that managers of the Wasatch Emerging Markets Select Investor Fund offer.

They added more than they have at any time in the past 10 weeks, says Bank of America. This continues a trend that started in late 2020.It’s the latter, says Neal Dihora, who helps manage the Wasatch Emerging Markets Select Investor Fund WAESX, -1.41% alongside lead manager Ajay Krishnan, who has been at the helm for over nine years.

EM will benefit from mega trends Dihora cites five so-called mega trends: population growth; “financialization,” or the greater use of consumer credit; digitalization, meaning greater use of the internet for things like shopping and banking; and industrialization. The bottom line: While the iShares MSCI Emerging Markets ex-China ETF EMXC, -0.11% has beaten the S&P 500 SPX, -0.02% by about a percentage point year to date, this may be the start of a medium-term trend of outperformance.

Consider MercadoLibre MELI, +0.91%, a kind of Latin American Amazon.com AMZN, +0.71%. The popular online retailer had 82.2 million users at the end of last year, in a region with over 650 million people. That’s a big potential market. For example, by the end last year, the company had 12 customers spending more than $20 million a year, up from seven the year before. And it had 185 customers spending more than $1 million, up from 129 a year ago.

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