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2 Emerging Market Stocks to Buy as the Dollar Weakens

The U.S. dollar slid to a two-month low last week as data revealed that consumer prices in the United States rose more than expected in December. However, the weakening greenback could help emerging markets outperform in the near term. So, we believe it may be prudent now to invest in emerging market stocks Vale S.A. (VALE) and NetEase (NTES), which have surged significantly in price over the past few months and could continue ascending in the coming weeks. Read on.

The U.S. dollar lost value against a basket of currencies last week, hitting its lowest level in more than two months, with investors de-risking their portfolios ahead of the Federal Reserve's anticipated interest rate hikes. On January 13, the dollar index fell 0.666% to 94.97, reaching a two-year low.

However, a weakening dollar is highly correlated with gains in emerging markets—when the dollar declines, the value of foreign-currency-denominated assets rises for U.S, investors. A weaker currency also benefits emerging market countries that have borrowed in U.S. dollars.

Therefore, to cash in on the market trend, we think it could be wise to bet on two emerging market stocks: Vale S.A. (VALE) and NetEase Inc. (NTES).

Vale S.A. (VALE)

Headquartered in Rio de Janeiro, Brazil, VALE and its subsidiaries manufacture and sell iron ore and iron ore pellets for use as raw materials in steelmaking globally. The company operates in three segments: Ferrous Minerals; Base Metals; and Coal.

For the third quarter, ended Oct. 28, 2021, VALE's revenue increased 17.8% year-over-year to $12.68 billion. Its operating income came in at $3.84 billion over this period. The company's net income increased 33.6% year-over-year to $3.89 billion, while its EPS surged 33.4% from the prior-year quarter to $0.76 over this period.

VALE is expected to achieve 33% revenue growth in fiscal 2021. In addition, its EPS is estimated to increase 338% year-over-year to $4.17 in fiscal 2021. VALE's stock has gained 12.6% in price over the past month and 6.4% over the past three months.

VALE's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

VALE is also rated an A for Value and Quality. Within the Industrial – Metals industry, it is ranked #4 of 35 stocks. To see additional POWR Ratings for Stability, Sentiment, Growth, and Momentum, click here.

NetEase Inc. (NTES)

Beijing, China-based NTES offers online gaming, communication, and commerce services in the People's Republic of China and worldwide. Online Games Services; Youdao; and Innovative Businesses and Others are the company's operational segments. Its other products and services include NetEase Cloud Music, a music streaming platform, and Yanxuan, an e-commerce platform that offers private label products that include consumer electronics, food, fashion, homeware, kitchenware, and other general merchandise.

Last month, NTES announced that Morgan Stanley Capital International had raised its MSCI ESG Rating to "A," outperforming 75% of the global media and entertainment industry. According to MSCI's most recent ESG ratings, NTES achieved outstanding scores among worldwide peers for its ESG activities in the areas of "privacy and data security" and "human capital development."

During the third quarter, ended Sept. 30, 2021, NTES' net revenue increased 18.9% year-over-year to RMB 22.19 billion ($3.44 billion). Its operating income increased 31.5% from the year-ago value to RMB 3.78 billion ($585.90 million). And the company's non-GAAP net income increased 5.1% year-over-year to RMB3.67 billion ($598.7 million).

Its EPS is estimated to increase 6.5% year-over-year to $1.24 in the current quarter (ending March 2022). Furthermore, it has gained 8.3% in price over the past three months.

NTES' strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. NTES has a B grade for Growth, Value, and Quality. In the China industry, it is ranked #1 of 49 stocks.

In total, we rate NTES on eight distinct levels. Beyond what we have stated above, we have also given NTES grades for Stability, Momentum, and Sentiment. Get all the NTES ratings here.

VALE shares were trading at $15.64 per share on Tuesday morning, up $0.26 (+1.69%). Year-to-date, VALE has gained 11.55%, versus a -3.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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