Investors who are daring enough to dip into emerging markets now could see big gains in the future. Over the past five years, the MSCI Emerging Markets Index had an annualized loss of 3%, including an 11.3% loss through the first 10 months of 2015, in the face of a big drop in commodities prices, a slowdown in China’s economic growth and expectations that the Federal Reserve will start raising interest rates. (Rising rates tend to strengthen the US dollar and attract capital away from emerging markets.)

But in the past, stocks in the ­developing world, which are 60% more volatile than the Standard & Poor’s 500 stock index, have tended to soar after investors abandoned them and their stock valuations sank. Stocks in the MSCI index now trade at an average price-to-earnings ­ratio of 11 versus 18 for the S&P 500. Following a 53% plunge in the MSCI index in 2008, it returned 79% in 2009 and 19% in 2010. And after a rough time in the late 1990s and early 2000s, the index shot up 391% from 2002 to 2007. It’s best to focus on companies in industries and countries that already have begun to rebound and/or that have substantial growth potential.

Attractively priced stocks now…

Dr. Reddy’s Laboratories (RDY) is one of the largest pharmaceutical manufacturers in the world and a ­major Indian exporter.

Hon Hai Precision Industry Co. (HNHPF) is the world’s largest contract manufacturer of electronics, best known for assembling iPhones and iPads for Apple. Although that business has slowed, the Taiwanese company is expanding into software development and data-center equipment and working with fast-growing Chinese smartphone makers.

 

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