Emerging Markets

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What are Emerging Markets?

A term coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. Emerging markets are those countries or geographic regions with a previously untapped potential for investment, these countries are restructuring their economies along market-oriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment. Such countries constitute approximately 80% of the global population.

Nations typically characterized under this banner are often developing countries, but they may also be economically formidable countries with markets that are increasingly open to exports. The big emerging markets-BEMs share certain characteristics, they have large territories and populations, and they are undertaking extraordinary development projects that call for new infrastructure, such as power-generating plants and telecommunications systems. And, of course, with development comes increased demand for consumer goods, like computers and household appliances.

These countries have pursued economic policies leading to faster growth and expanding trade and investment with the rest of the world. They aspire to be technological leaders. Their economic growth would have enormous spillover into their respective regions, and they all have political clout.

According to the World Bank, the eight largest emerging markets that are particularly important to investors

China	Russia	Mexico	Indonesia
Brazil	India	South Korea	Turkey
Other countries that are also considered as emerging markets include
Afghanistan	Iran	Peru	Taiwan
Argentina	Israel	Philippines	Thailand
Bahrain	Jordan	Poland	Tunisia
Bangladesh	Kuwait	Qatar	UAE
Bulgaria	Latvia	Romania	Ukraine
Chile	Lithuania	Saudi Arabia	Venezuela
Colombia	Malaysia	Singapore	Vietnam
Czech Republic	Mauritius	Slovakia
Egypt	Morocco	Slovenia
Estonia	Nigeria	South Africa
Hong Kong	Oman	Sri Lanka
Hungary	Pakistan	Sudan

These countries made a critical transition from a developing country to an emerging market. Each of them is important as an individual market and the combined effect of the group as a whole will change the face of global economics and politics.

What makes them different? 
Emerging markets stand out due to four major characteristics.

First, they are regional economic powerhouses with large populations, large resource bases, and large markets. Their economic success will spur development in the countries around them.

Second, they are transitional societies that are undertaking domestic economic and political reforms. They adopt open door policies to replace their traditional state interventionist policies.

Third, they are the world's fastest growing economies, contributing to a great deal of the world's explosive growth of trade. They will also become more significant buyers of goods and services than industrialized countries.

Fourth, they are critical participants in the world's major political, economic, and social affairs. They are seeking a larger voice in international politics and a bigger slice of the global economic pie.

Banks in emerging markets have remained strong for the most part due to simple banking models, fairly good capitalization, and lower debt-to-deposit ratios, having avoided over lending in recent years. Their chief advantage over their counterparts in developed economies is their much smaller exposure to toxic financial products.

How do they change the traditional views of development? 
The rise of emerging markets is changing the traditional view of development as follows.

First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations.

Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration.

Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency. The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.

What are their prospects?

Emerging markets are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. As they continue to maintain political stability and succeed with their structural reforms, their future is promising.

More than half of global economic growth is now driven by emerging markets. For investors, these countries have offered some of the most spectacular returns in recent years.

Has the global crisis affected the emerging markets?

Yes, emerging markets have been hit by the crisis, too. But consider this: In 2009, the economies of Brazil, Russia, India and China are poised to outgrow the U.S. by 3,400%... 5,400%... 6,900%... and 9,100% (source: International Monetary Fund). And a handful of companies are poised to ride this “secret boom” to big gains… and even bigger gains as the U.S. recovery begins.

Due to the current crisis the GDP growth of the emerging markets have slowed down a bit but it still remains the fastest in the world and will emerge from the present stresses in good shape.

What is the outlook?

As the current turmoil subsides, emerging markets will fare better than developed markets and will outperform the latter over the short, medium and long term. Consider:
 

Emerging-market economies will prove resilient during this economic slowdown and may account for all of world economic growth in the future as developed markets slow to zero.

Emerging economies are not nearly as dependent on consumer spending and almost not at all exposed to consumer credit.

Emerging markets by and large suffer neither the demographic imbalance nor the entitlement imbalance that plague the developed nations.

Corporate and personal balance sheets in emerging markets are stronger than those in the developed markets.

In many emerging markets like Brazil, most of South East Asia, India as well as several African nations, domestic or regional demand is now more important than exports for GDP growth.

Among stronger economies, high foreign-exchange reserves and lower foreign debt levels act as insurance against the global slowdown; reserves have grown six-fold to over $4 trillion over the last 10 years.

Over the past 10 years, emerging-market companies have produced higher profits with lower, but not necessarily low leverage, while profits expanded annually by double digits during the past 10 years.

While we expect current account surpluses to deteriorate given the global slowdown and recessionary pressures, emerging markets will face this challenging period with cash in their bank accounts.

Many emerging-market countries now have a greater reserve of wealth with which to buffer financial market headwinds. This gives them the option of taking fiscal stimulus measures to offset the effects of a developed-markets slowdown without having to go into debt.

The turning point

Emerging markets will be the catalyst for global economic recovery. Like China, many emerging markets that have been saving for a rainy day have the cash and political will to spend on development projects that require raw materials. Others, like Chile and Angola, have the raw materials to sell. Even more so, a few countries like Brazil and Saudi Arabia have both. The world economy will get a boost with these countries initiating their own trade without the leadership or consumptive traditions of the Western world.
Perhaps even more pointedly, we foresee a highly inflationary environment over the next several years. This will more than likely spark another commodities boom, which is supported by the world’s ever-growing demographics, resource scarcity, and climate-change legislation.
As such, resource-rich emerging markets are going to find themselves being the future home to foreign investment capital. Institutional capital will trickle, then gush into these markets as the world wakes up one day and finds oil and copper trading at twice their present levels.
The window is open, and we are dedicating our efforts to finding the most undervalued investment opportunities and companies with rock-solid management and balance sheets.	Source:			/www.swfinvestguide.com