High Quality Stocks in Emerging Markets

Abstract

An investor, as Warren Buffett said, should think like a part-owner when investing in common stocks. As a part-owner, the investor should be concerned about the competitive positioning of the business he/she is invested in as a business that is relatively insulated from competitive actions, will generate superior returns on its invested capital. In this paper, we discuss the key characteristics of such businesses, businesses we refer to as High Quality (HQ) businesses. Chief among the characteristics of a HQ business is the existence of “sustainable” competitive advantage. We discuss an investment process for selecting HQ businesses based on three fundamental variables and show the risk and return of investing of HQ stocks as compared to the MSCI Emerging and Frontier Markets Standard Index.

Keywords: Asset prices, high quality stocks, quality, emerging markets, sustainable competitive advantage

JEL Classification: G01, G11, G12, G14, G15