Emerging markets growth

by | Oct 3, 2018

Growth Patterns in Key Emerging Markets

Emerging markets continue to create exciting investment opportunities, especially for people who want to diversify their portfolio and safeguard themselves from developed market debt. Despite rising signs of emerging market weakness, certain countries continue to perform within the shifting landscape.

A lot of the economic instability witnessed in nations such as Turkey and Argentina is due to a strong US dollar, which increases debt and leads to poor domestic currency performance. Along with the rising US dollar, the other factor that has defined emerging market growth over recent months is the divergence in equity and commodity performance.

While agriculture and energy markets can still be very profitable, we’re increasingly seeing a move away from resources and towards information technology and other consumer-based markets. Countries performing well are generally those with less US debt and those reliant on consumer-based sectors as opposed to energy and other infrastructure-based sectors.

China

While it might seem obvious, China is the country that continues to excite investors more than any other. China has a large population at 1.386 billion, including a growing middle class with more disposable income than ever before. The GDP in China is 12.24 trillion, which is equivalent to 58 percent of the world’s average. Their unique socialist market economy is the second-largest by nominal GDP and the largest in terms of purchasing power. Despite these impressive stats, China still has so much room to grow and is not considered a developed country due to its low GDP per capita.

With infrastructure-based economies like Russia and Brazil continuing to falter and consumer-based economies getting stronger all the time, China is obviously in a very healthy position. Information technology is the one sector to watch more than any other, with China able to make significant technological changes and support these changes through its growing consumer base. China’s US$11.4 trillion bond market has already become very attractive to western investors, with this market almost entirely domestically owned and almost completely uncorrelated with US and emerging-market currency bonds. According to data from JPMorgan, US$80 billion of foreign money has come into China’s onshore bond market so far in 2018.

India

India is also an attractive proposition to foreign investors, thanks mostly to its young population and emerging tech sector. Not only does India have a massive population of 1.339 billion, it is set to be the youngest country in the world by 2020. The median age in India is just 27.3, with millennials accounting for roughly 34 percent of India’s population and 46 percent of its workforce. The GDP of India is 2.597 trillion, with real GDP growth forecast at 7.3 percent this year and 7.5 percent over the next two years. Indian bonds also enjoy a relatively low correlation with other global markets, which makes them a great vehicle for diversification. 

Population growth and the emergence of insulated consumer markets continues to provide investment opportunities throughout Asia and beyond.