Key Takeaways
- A heavy concentration in US equities, which constitute over 60% of major global indices, presents a significant portfolio risk that can be mitigated through targeted international diversification.
- Emerging market ‘super-apps’ like MercadoLibre, Nu Holdings, and Kaspi offer exposure to powerful secular growth in underpenetrated digital economies, but require careful assessment of currency volatility and regional political risks.
- An alternative path to diversification lies in specialised industrial and technology firms, such as Kraken Robotics, which operate in niche, mission-critical sectors like subsea defence and benefit from non-cyclical demand drivers.
- Valuation across these international opportunities is far from uniform; high growth expectations are priced into Latin American fintech, while entities in regions like Kazakhstan may trade at a discount reflecting perceived governance and geopolitical uncertainties.
The persistent outperformance of United States equities has cultivated a significant home bias in many portfolios, creating a source of concentrated risk that is often overlooked. With US stocks now representing a dominant share of global market capitalisation, the case for disciplined geographical diversification has become less a matter of tactical advantage and more a tenet of prudent risk management. Exploring opportunities beyond American borders reveals two distinct avenues for potential alpha: the high-growth digital ecosystems of emerging markets and the specialised, mission-critical operations of niche industrial technology firms.
The Emerging Market Super-App Thesis
A compelling theme outside the US is the rise of the digital ‘super-app’ in regions with large, youthful populations and historically low banking penetration. These platforms create powerful, enclosed ecosystems by integrating e-commerce, digital payments, credit, and other financial services, capturing a significant share of consumer activity. Latin America and Central Asia have become fertile ground for this model, though each market presents a unique risk and reward profile.
MercadoLibre, the long-established giant of Latin American e-commerce and fintech, continues to demonstrate formidable growth. Its dual-engine model, combining a marketplace with the ubiquitous Mercado Pago payments network, creates a virtuous cycle of user acquisition and engagement. Despite operating in volatile economies like Argentina, the company’s net revenue grew 36% year-on-year to $4.3 billion in its first quarter of 2024, showcasing a degree of resilience. [1] Its fintech division, in particular, is expanding rapidly, with its total payment volume growing 37% year-on-year to $40.7 billion. [1]
Brazil offers a more focused fintech opportunity through competitors Nu Holdings and StoneCo. Nu has achieved staggering scale, serving over 100 million customers across Latin America by leveraging a low-cost, all-digital banking model. [2] This scale is beginning to translate into profitability, with the company reporting a net income of $378.8 million in the first quarter of 2024. [3] StoneCo targets a different segment, providing financial technology solutions primarily to small and medium-sized businesses. Both, however, remain exposed to the fluctuations of the Brazilian real and the country’s complex regulatory environment.
Further afield, Kaspi.kz presents a unique case in Kazakhstan. Its super-app dominates the national market, integrating a leading payments platform, an e-commerce marketplace, and fintech services for consumers. The business model is highly profitable, and the company trades at a valuation multiple that appears modest compared to its Latin American peers. Yet this discount reflects the substantial geopolitical and governance risks associated with operating in a region under the influence of larger, unpredictable neighbours. Its recent US listing may improve liquidity and transparency, but the underlying country risk remains a primary consideration for investors.
Comparative Financial Snapshot
A look at key metrics reveals the trade-offs between growth, profitability, and valuation in these distinct markets.
| Company | Primary Market | Business Model | Market Cap (Approx. USD) | Revenue Growth (Q1 2024 YoY) | Key Consideration |
|---|---|---|---|---|---|
| MercadoLibre ($MELI) | Latin America | E-commerce & Fintech | $80B | 36.0% | Navigating regional economic volatility. |
| Nu Holdings ($NU) | Brazil, Mexico, Colombia | Digital Banking | $58B | 64.0% | Sustaining premium valuation through growth. |
| Kaspi.kz ($KSPI) | Kazakhstan | Payments, Marketplace, Fintech | $22B | 22.0% (Net Income) | Discounted for geopolitical and governance risk. |
| Grab Holdings ($GRAB) | Southeast Asia | Mobility, Deliveries, Fintech | $14B | 24.0% | Demonstrating a clear path to sustained profitability. |
Note: Financial data is based on first-quarter 2024 earnings reports or the most recent available figures. Market capitalisation is subject to market fluctuation.
Diversification Through Niche Industrial Expertise
A second, and perhaps more esoteric, route to non-US diversification is through companies possessing deep, defensible expertise in niche industrial sectors. These businesses are often less correlated with broad consumer trends and can benefit from secular drivers such as increased defence spending, supply chain reconfiguration, or specialised technological demand. Their value proposition is not scale, but scarcity of skill.
Kraken Robotics, a Canadian firm, exemplifies this approach. The company designs and manufactures sophisticated sonar, laser scanners, and robotic systems for underwater intelligence and surveying. Its clients are not consumers but naval forces, energy firms, and scientific institutions that require high-resolution imaging of the seabed for defence, infrastructure maintenance, and exploration. The company operates in a sector with high barriers to entry, built upon proprietary technology and years of operational data. Kraken reported record revenue of C$20.7 million in its first quarter of 2024, driven by demand for its subsea batteries and sonar systems. [4] This type of business offers exposure to long-term, non-cyclical government and corporate spending, providing a diversification benefit that is structurally different from consumer-facing technology.
Similarly, Flex Ltd., though domiciled in Singapore and operating globally, offers a different flavour of industrial diversification. As a leading contract design and manufacturing firm, Flex is a critical but often invisible partner for major brands in sectors like automotive, healthcare, and cloud computing. Its performance is tied to the resilience and evolution of global supply chains. As corporations diversify their manufacturing footprint away from single-country concentrations, firms like Flex are positioned to benefit from the trend towards ‘friend-shoring’ and regionalisation. Its broad industrial base provides a buffer against weakness in any single end market.
A More Deliberate Approach to Global Investing
Moving beyond a US-centric portfolio requires more than simply buying a global index fund. The opportunities in international markets are highly specific, demanding a granular understanding of both the business model and the environment in which it operates. The high-growth super-apps of emerging markets offer a path to tap into powerful demographic and digital adoption trends, but this comes with unavoidable currency and political risk.
Alternatively, specialist industrial firms provide exposure to unique, hard-to-replicate value chains that are often insulated from mainstream economic cycles. The central hypothesis is that a truly diversified global portfolio for the next decade may be best constructed as a barbell. On one end, carefully selected high-growth digital platforms in volatile but expanding economies. On the other, stable, niche industrial specialists that are integral to the shifting architecture of global trade and security.
References
[1] MercadoLibre. (2024, May 2). *MercadoLibre, Inc. Reports First Quarter 2024 Financial Results*. Investor Relations. Retrieved from https://investor.mercadolibre.com/news-releases/news-release-details/mercadolibre-inc-reports-first-quarter-2024-financial-results
[2] Nu Holdings. (2024, May 21). *Nu’s customer base surpasses 100 million in Brazil, Mexico, and Colombia*. Retrieved from https://investors.nu/news-releases/news-details/2024/Nus-customer-base-surpasses-100-million-in-Brazil-Mexico-and-Colombia/default.aspx
[3] Nu Holdings. (2024, May 14). *Nu Holdings Reports First Quarter 2024 Financial Results*. Retrieved from https://investors.nu/news-releases/news-details/2024/Nu-Holdings-Reports-First-Quarter-2024-Financial-Results/default.aspx
[4] Kraken Robotics. (2024, May 29). *Kraken Reports Q1 2024 Results Including Record Q1 Revenue and Adjusted EBITDA*. Retrieved from https://krakenrobotics.com/kraken-reports-q1-2024-results-including-record-q1-revenue-and-adjusted-ebitda/
