Investors seem to have taken again to emerging markets, with capital flows for the seven days ended March 31 confirming that interest, at least in what regards investing in bonds.
It was the sixth week running of inflows into emerging-market debt funds, with $400 million going in, according to capital-flows data analyzed by Bank of America Merrill Lynch.
By contrast, emerging-market equities saw outflows, with redemptions worth $300 million ending three previous straight weeks of inflows.
However, this could mean that investors are only taking some profit before putting money back into emerging-market equities. The Federal Reserve's more dovish-than-expected stance is pushing investors back into riskier assets, and emerging markets are set to benefit.
One way for investors to get exposure to the nascent recovery without putting all their money in emerging-market stocks would be to buy the stocks of developed countries' companies that do a lot of business in developing ones.
There are, of course, many such companies in the United States, but investors would do well to diversify across the pond in Europe, too. That's because despite today's difficult political environment, European stocks are set to benefit from the European Central Bank's various monetary-easing policies -- most of all from the fact that the ECB will soon start to purchase corporate bonds.
Equity strategists at Societe Generale have made a list of European stocks that can be used as emerging-markets proxies. Here are three of their picks:
Alstom (ALSMY) is a French industrial conglomerate that makes trains and signaling systems and designs and implements solutions for track laying and electrification.
Its Paris-traded main shares have lost more than 25% over the past year, as ALSMY has been hurt by a bribery investigation into its employees, with three trials scheduled to take place in Britain. (The employees have denied all allegations.)
On the plus side, the company obtained two rail contracts in India last December, worth a total of 3.7 billion euros ($4.21 billion). Around 52% of Alstom's sales are in emerging markets.
Despite an increase in revenue to 6.2 billion euros last year from 5.7 billion euros in 2014, the company posted a net loss of 719 million euros, reversing the previous year's 556 million euro profit. But Alstom has been paying off debt, reducing its debt-to-total-capital ratio to 65.43% last year from 77.47% in 2014.
Another company that derives around 52% of its sales in emerging markets is dairy producer Danone (DANOY). The stock has held up pretty well, losing less than 3% of its price over the past year despite food companies generally taking a hit because of deflation.
DANOY has a dividend yield of 2.6%, not something to sneeze at in this world of zero or negative interest rates. The company's debt is also sustainable and falling, with a debt-to-total-capital ratio of 44.62% in 2015 from 53.33% in 2014.
A third pick is more intriguing, as it is an oil company: Italy's Eni (E), which has 70% of sales in emerging markets. The company's stock is down more than 20% over one year, and it lost money in 2015.
Eni's revenue fell by 27.3% to 67.74 billion euros last year as oil prices collapsed, and it reported a loss of 8.82 billion euros. However, RBC Capital upgraded Eni's stock to "Outperform" from "Market Perform" in mid-March. At the end of February, Eni also reported "valuable growth" in its upstream operations (exploration and production) last year, when it posted a 10% increase in production.
While highly risky, it could pay off in the long term for investors to try to take advantage of the value being created in these stocks by political and social turmoil in Europe and some emerging markets.
But if you'd rather stay in the U.S. market, here are some domestic investing ideas to check out today:
