What is an emerging market?
An emerging market, sometimes also referred to as an emerging economy, is one that possesses characteristics of a developed country, but still lacks critical regulatory or financial detail for it to fully qualify for a “developed nation” designation.
They are normally identified by rapid advancement of their manufacturing and/or technological sectors, movement away from dependence on raw materials and agricultural products for income and high GDP growth.
Investors are often attracted to this high growth because it presents them with an opportunity to earn larger than usual returns.
The downside of this is that risks to investment capital are also correspondingly high. This is caused by the relative underdevelopment of the legislation governing emerging markets’ financial sectors. Emerging markets may also lack social and political stability. Unpredictable fluctuations in the value of an emerging market’s currency against that of the US dollar also heightens the risk of investment.
When is an emerging market a good investment?
If you are thinking about investing in an emerging economy, here are some positive indicators you should look for to help you make your decision:
– Low levels of State ownership of major assets. State ownership tends to increase the level of political interference and corruption in companies and industries investors may be interested in. This makes investment returns unstable
– Low levels of taxation. Lower taxes mean higher dividend payments on investments.
– Diversified investment opportunities. Emerging markets that have a wider range of investments help spread your risk.
– Easily accessible and comprehensive information about investments. This allows investors to properly assess their level of risk and to insulate themselves accordingly.
– Stable governance and low corruption as evidenced by global index scores.
– A government that makes largely sound fiscal and monetary policy decisions.
6 emerging markets worthy of your attention
There are several organizations that track the performance of investment vehicles in emerging markets.
One of the most prominent is the Morgan Stanley Capital Index. The MSCI Emerging Markets highlights the performance of 26 countries. Here are 6 countries on that Index that are worthy of watching.
Thailand
Investment strategists at the prominent business magazine, Bloomberg, have selected Thailand as their top pick for the best emerging market in 2021.
The country is in the middle of an infrastructure upgrade. Because these projects are open to foreign investors, they are likely to attract large amounts of international capital inflows.
The country has a high level of foreign reserves combined with a large surplus on its current accounts. This signals that it is economically stable and is the beneficiary of sound fiscal and monetary policy set by government.
These policies are designed to stimulate growth in the post-COVID 19 period.
Thailand also has a diversified economy and has been steadily moving away from its dependence on agricultural products. It now exports car parts and chemicals among other things.
South Korea
South Korea has low debt as a result of economic policies pursued by its government.
Combined with this low debt, the government has also invested in its people and research and development. The result has been an upsurge in the number of South Korean technology firms that are global leaders in their industry.
This strong export sector for technologies presents many investment opportunities for foreign entities. South Korea has also been improving its financial regulatory framework to combat corruption. Its growth is also expected to rebound in the post-COVID 19 periods.
The UAE
The United Arab Emirates is considered one of the powerhouses among emerging markets for several reasons.
The first is that it has managed to maintain political stability in a region that is rife with upheaval. Because of this, it has been able to post medium to high GDP growth figures over the last several years.
Its largest city, Dubai, has zero income tax and has become host to the Middle Eastern headquarters of several well-known multinationals. As a result, the UAE and Dubai can proudly boast that they are home to nationals of some 170 countries. This increases the knowledge base that the UAE can access for its development.
These foreign nationals, local firms and the UAE government have worked to improve the entrepreneurial and research and development environment which has created a wealth of investment opportunities for those interested in this emerging market.
The UAE consistently achieves high scores on Ease of Doing Business Indexes and it is continually making improvements to bring more transparency to its business processes.
Mexico
Mexico has the second-largest economy in the Americas.
The IMF has indicated that Mexico has good GDP growth prospects in the short to medium term and it expects it to grow by some 2.3 percent.
The Central American country has an IT sector that is set to become a global player and government reforms to its financial sector and economic competitiveness have led to an increase in foreign direct investment.
Brazil
This is also one of the largest economies in the Americas.
Investment analysts are predicting increases in capital inflows in the post-COVID 19 periods.
These inflows will be prompted by a sustained COVID recovery effort and a massive domestic infrastructure development program which will create opportunities for even more foreign investment.
The country has also consistently posted positive GDP growth prior to COVID 19 and analysts say there is no reason why it should not continue to do so.
Russia
Even though Russia has the 12th largest economy in the world in terms of GDP, its history as a socialist economy prevented it from being integrated into the global economy until relatively recently.
Russia has posted consistently good GDP growth figures since 1998.
It also has low levels of debt and a good foreign reserves position.
Because of its vast supply of natural resources, Russia is in a position to diversify its economy, which in turn creates a climate for foreign direct investment.
If you’re an investor looking to diversify your portfolio and can tolerate a high level of risk with the potential for correspondingly high rewards, then one of these emerging markets may be right for you.
