We recently compiled a list of the 10 Best Emerging Markets Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Alibaba Group Holding Limited (NYSE:BABA) stands against the other emerging markets stocks.

Emerging markets stocks are shares of companies based in developing countries – think Brazil, India, China, or South Africa – that are rapidly industrializing and growing their economies. Unlike the familiar and more predictable world of US stocks, emerging markets offer something quite different: higher growth potential coupled with greater volatility, influenced by unique local dynamics such as political shifts, currency swings, and evolving regulations. Why venture into these turbulent waters? Because with higher risk comes the potential for higher rewards. These markets often grow faster than mature economies, making them especially attractive if you’re looking to diversify beyond the stability (and sometimes slower pace) of US equities. Also, exposure to the best emerging markets stocks would not only boost the return profile of a portfolio, but also make it less volatile through diversification – many emerging markets exhibit little to no sensitivity to the state of the economy in the US, meaning that their national economy could continue to grow even when the US is in a recession.

READ ALSO: 10 Best Emerging Technology Stocks to Buy Now

Timing matters, especially when diving into emerging markets stocks. Investing in these companies makes the most sense when global economic conditions are improving, investor sentiment is optimistic, and local political or financial uncertainties are settling down. It’s particularly appealing if you’re a patient investor who can withstand short-term volatility for potentially bigger long-term gains. Additionally, when valuations in developed markets like the US are stretched and growth appears limited, emerging markets stocks can offer a refreshing alternative, giving your portfolio both growth exposure and geographical diversification.

The current tendencies we see in the global markets are highly suggestive that a potential rotation from US stocks to emerging markets stocks would be the right move to make. Despite the US market being in correction mode, valuations still appear stretched, as the whole market trades at a forward P/E above 20x, significantly above the historical average, which is around the mid-teens. This is the first factor that points toward the possibility that US stock market returns will be lower until the end of the decade due to the impact of declining valuations (or, call it a return to more normal valuations). Second, the new Trump 2.0 administration introduced a lot of noise into the US economy – the Atlanta Fed has already lowered its GDP growth estimates for the following quarters as a result of significant cuts in public spending as well as the tariff threats negatively impacting the private spending outlook. This expected economic slowdown is exclusive to the US market, while emerging markets may continue to grow their economies at a usual pace.

Finally, the potential impact of the upcoming reciprocal tariffs on April 2 is still not completely understood by the markets. What is certain is that the tariff threats have already caused inflation in some products, such as construction materials, copper, and other commodities, as businesses rushed to stockpile raw materials and inventories at cheaper prices before tariffs were enforced. Higher inflation, especially in core products like housing, is not good for the economy, as it pressures consumers and erodes their spending power. Higher inflation may also reduce the chances that the FED will lower interest rates any time soon, which is another impediment to economic growth. The key takeaway for readers is that the aforementioned headwinds and threats are mostly exclusive to the US market, while most of the emerging markets are likely to be impacted much less.

An e-commerce platform displaying a wide range of products to customers online.

Our Methodology

We shortlisted 20-30 emerging markets stocks that are based in and derive most of their revenue from emerging countries. Then we compared the list with our proprietary database of hedge funds’ ownership and included in the article the top 10 stocks with the largest number of hedge funds owning the stock as of Q4 2024. All stocks are ranked in ascending order.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders: 107

​​Alibaba Group Holding Limited (NYSE:BABA), based in China, is a multinational conglomerate operating across e-commerce, retail, internet, and technology sectors. Its core businesses include China Commerce, featuring platforms like Taobao and Tmall; International Commerce, through AliExpress and Lazada; and Local Consumer Services, such as food delivery. The company also runs Cainiao for logistics, Alibaba Cloud for cloud computing services, and digital media platforms like Youku. BABA ranked second on our recent list of 12 Best ADR Stocks to Buy According to Hedge Funds.

Alibaba Group Holding Limited (NYSE:BABA) showed strong momentum across its core businesses in 2024 following a year of transformation, driven by a user-first, AI-powered strategy centered on e-commerce and cloud services. The cloud division posted solid growth, with revenue (excluding Alibaba-consolidated subsidiaries) rising 11%, while AI-related product revenue continued to see triple-digit growth for the sixth straight quarter. In e-commerce, platforms like Taobao and Tmall recorded strong gains in both new users and order volumes, with customer management revenue increasing 9% YoY and VIP memberships growing to 49 million. The international e-commerce segment also maintained healthy growth, supported by greater operational efficiency, and AIDC is on track to report its first profitable quarter in the upcoming fiscal year.

Looking ahead, Alibaba Group Holding Limited (NYSE:BABA) plans to significantly scale up investments over the next three years in three key areas: AI and cloud infrastructure, foundational AI models and native applications, and integrating AI into its existing businesses. The company noted that planned spending in cloud and AI infrastructure will exceed its total investment in this area over the past decade. Financially, BABA remains on solid footing with a strong net cash position and continued efforts to streamline its balance sheet through asset divestitures, share repurchases, and prudent debt management.

Overall BABA ranks 1st on our list of the 10 best emerging markets stocks to buy according to hedge funds. While we acknowledge the potential of BABA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks To Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.