Investing in emerging market stocks is essential for building a well-diversified global investment portfolio. In fact, according to Morgan Stanley, an ideal global equity portfolio should have at least 13% allocated to emerging markets.

But emerging market stocks have lagged behind the broad market so far this year. Much of the underperformance is attributed to non-company-specific factors such as COVID-19 resurgences, supply chain disruptions, slowing global growth, and rising inflation. But as investors take a bearish view of the entire sector, many fundamentally strong stocks with significant competitive advantages and improving financials are now trading at attractive valuation levels.

MercadoLibre (NASDAQ:MELI) and Pinduoduo (NASDAQ:PDD) are two such international companies that offer investors exposure to fast-growing markets at attractive price points.

A store owner prepares to ship orders to customers

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1. MercadoLibre

As an e-commerce and fintech leader in Latin America, MercadoLibre is well-positioned to benefit from the explosive growth potential in this region. Referred to as the "Amazon of Latin America," the company has built an integrated ecosystem comprised of an online marketplace, the Mercado Pago payments platform, a logistics service, advertising services, and online storefront solutions. The company has a presence in 18 countries, most of which have fragmented e-commerce and fintech markets.

The company's scale and the self-managed Mercado Envios logistics network (which enables cross-border transactions and deliveries to underdeveloped regions) have enabled it to compete effectively against smaller players in these emerging markets.

According to Morgan Stanley estimates, the e-commerce market opportunity in Latin America is expected to grow from $50 billion in 2020 to $160 billion in 2025. However, despite the market growing at 21% annually from 2019 through 2025, e-commerce penetration in Latin America will rise from just 5% to 16% over the same period. This leaves much room for a dominant player like MercadoLibre with an established logistics and fulfillment infrastructure to expand in the coming years.

MercadoLibre's fintech platform, Mercado Pago, could prove to be an even bigger opportunity. With customers using Mercado Pago to process digital payments on the marketplace and off the platform, it is helping boost e-commerce transactions while also creating a sticky customer base. Mercado Pago is also used extensively for peer-to-peer transactions, retail investing, and even for paying bills in Latin America.

The company's credit services (offered to merchants and customers) are backed by proprietary credit risk models using unique data about borrower behavior from its online marketplace. This has helped to significantly reduce the default risk.

All these strategic moves have translated into robust growth in gross merchandise value (GMV) on the company's marketplace and total payment volume (TPV) on Mercado Pago for the past few quarters. In the third quarter, GMV was up 30% year over year to $7.3 billion, while TPV rose 59% year over year to $20.9 billion. The company's revenue also soared 73% to $1.9 billion on a currency-neutral basis.

MercadoLibre is not yet profitable. However, this is not exceptional for e-commerce companies focused on rapid market share growth. The company enjoys a strong moat in a difficult-to-penetrate Latin American market. Against this backdrop, I am very bullish on this stock for the long run.

A delivery courier hands off a package to the recipient

Image source: Getty Images.

2. Pinduoduo

Pinduoduo has differentiated itself from other e-commerce players in the Chinese market by focusing on the interior and relatively underdeveloped regions of the country. The company has targeted the high volume and cheap generic products category, allowing customers to enjoy significant discounts by opting for bulk purchases.

It even built the largest agricultural platform in China, enabling farmers to connect directly to consumers. The company is also making major strides in the online grocery market through its Duo Duo Grocery service.

Pinduoduo leverages consumer purchasing data to identify high-demand products. This information is then provided to suppliers, which helps them manufacture the right products in the right quantity. To attract new users and create a sticky customer base, the company has opted to add several mini-games in its app, thereby making online shopping a more engaging experience.

These efforts have paid off, considering that eMarketer ranked the company as the third-leading e-commerce player in China with a market share of 13.2% in 2021. In the second quarter, Pinduoduo's active buyer count was up 24% year over year to 849.9 million. The company's revenue soared 89% year over year to 23.0 billion yuan ($3.6 billion). Pinduoduo also posted a surprise profit of 2.4 billion yuan ($374 million), a significant improvement from the losses posted in previous quarters.

Regulators have imposed fines on Chinese e-commerce market leader Alibaba and No. 2 player JD.com for violating the country's antitrust laws. While Pinduoduo escaped with a relatively lighter fine, the company's share price suffered and is currently down almost 50% so far this year. However, with the backdrop of Pinduoduo's innovative growth strategy and rapidly improving financials, this pullback can prove to be an attractive entry point for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.