Investment Trends to Watch – Opportunities and Risks in Emerging Markets
Investors looking for strong growth and higher investment returns often look toward emerging markets (EM). Unfortunately, their economies and markets can sometimes follow their own rules, often creating significant challenges such as political instability or lower levels of liquidity for foreign investors.
Even with its risks, emerging markets offer strong long-term potential returns. Here are some investment trends worth keeping an eye on:
1. China’s Long-Term Growth
Emerging markets are vast and unpredictable, defying any straightforward narrative. Yet we believe some of the world’s largest economies could experience exponential long-term growth.
China’s transition should see it move away from investment growth driven by debt and towards one based on broad-based demand as its labor force ages, in turn helping avoid middle income traps similar to those experienced by South Korea and Taiwan.
At the same time, in Brazil we can see how market-friendly government policies and spending could bolster corporate earnings as the economy transitions towards consumerism. Meanwhile, India could benefit from its prudent central bank, rising GDP, improving demographic profile, inclusion into EM fixed income benchmarks as well as its ongoing economic transformation process bringing rewards. Meanwhile Indonesia shows us a promising outlook as its economic transformation bears fruit.
2. Brazil’s Long-Term Growth
Brazil, as the largest economy in South America, holds immense potential to contribute significantly to regional economic development. Brazil excels at several industries including petroleum production, food processing, meat processing and mining – leading the pack in each. Furthermore, Petrobras’ global reach and significant recurring profits enable a vibrant middle class to emerge thanks to Luiz Inacio Lula da Silva’s policies which enabled 13 million Brazilians to escape severe economic deprivation between 2003 and 2010.
Inflation remains subdued, consumer spending strong, foreign investment supportive for domestic demand and a rebound in commodity prices expected to spur exports – in some emerging economies supply chain changes could provide additional help in terms of stimulating economic activity.
3. Saudi Arabia’s Long-Term Growth
Saudi Arabia’s transformative economic and social reforms, from empowering women to diversifying its economy and strengthening capital discipline, present investors with an unparalleled investment opportunity.
Oil still dominates Saudi Arabia’s economy, but government investments in telecoms, petrochemicals, natural gas exploitation and power generation will help diversify revenue sources and could contribute to greater economic growth after 2023 with potential peace pact with Iran.
Political Risk: Emerging markets tend to feature less developed political and economic systems that increase volatility while decreasing levels of transparency and predictability, which increases the risk of war, regulation changes, runaway inflation and nationalization or expropriation of companies and their assets.
Investing in emerging markets requires careful thought, comprehensive research and the guidance of an experienced financial advisor. Diversifying your portfolio, monitoring currency risks and keeping informed of news events can all help reduce risks while increasing long-term success potential.
4. India’s Long-Term Growth
Even though the risks associated with investing in emerging markets often outweigh their long-term rewards, investors should remain wary of them and properly diversify their portfolios. One major benefit associated with investing in these economies is their high growth potential which may yield faster returns than investing in developed nations.
Emerging market economies often lack developed regulatory systems, leading to higher risk and volatility for investors. Over time though, emerging market economies tend to adopt reforms and establish institutions similar to those found in developed nations to promote economic growth and promote economic development.
India’s digitization drive offers tremendous growth opportunities across e-commerce, digital payments and other areas. Demographic trends and prudent monetary policies could further contribute to India returning to high growth trajectory – creating jobs for 90 million workers by 2030.
