Investing In Emerging Markets.
There is now a growing trend that a number of investors may be missing out – the rise of emerging markets. The reason is that they tend to bunch the whole group together and treat them as an asset class with BRICS (Brazil, Russia, India, China, and South Africa) in the lead, thereby missing out on long term opportunities. This is where individual investors may have an upper hand over institutional investors and should therefore, pursue and make hay.
Herein are the reasons why you need to re-shift your attention towards the emerging markets.
First misconception, is that all the emerging markets are one asset class. When investors diversify their financial portfolios, they often group together equities of emerging economies into one group. This is a gross oversimplification where bunching together of a group of equities by thinking that they will all move in the same direction. But this is not so,since equities from each country would have their individual large caps, small caps, down ticks, and upper ticks, among other intrinsic variations in stock trading.
The second misconception is that these emerging economies are BRICS alone, and no other. Most investors with diversified portfolios have looked at this group as one whole bunch – which is a wrong way to do it. So when the markets turned bearish in September, investors jettisoned the group like one unwanted cargo. But it should be a good thing to note that Poland didn’t get bruised a bit, nor the Indian Stocks waylaid when the rupee went down. When this happened, the Indian stocks even oversold; hence, the enigma of why bunching them together is not a doable option.
The third misconception is that, all emerging economies are the same. This is one big fallacy since BRICS as a group does not even move in one direction. As regards crude oil —Brazil, China and Russia are oil exporters; while India is an importer. All indicators pointed out that China would fall flat on its face, but it had a softer fall as compared to Brazil. A smart investor should be able to understand the different hues of gray to discern the differences between countries and learn to capitalize on it. This would differentiate them from the herd who merely thinks in black and white.
The Top Three Emerging Markets
With researches made about emerging markets, Thailand exhibited trends that highlight its strength as an investment haven. The indicators are all there — unemployment rate of less than one percent, low inflation rate of less than one percent, a low government deficit, a robust foreign reserve of $170 billion, and a healthy growth rate of its Gross Domestic Product (GDP) that averages to around 5.86 percent in the last couple of years.
Thailand has a strong middle class that spends on basic goods and services. The environment is conducive to business where there are no red tapes to encumber businesses from starting. Capital formation and investments are also secured by government policies to keep them safe and hassle-free.
The countries that make up the Baltics have strong economies that during the European Union Crisis —Estonia, Latvia, and Lithuania, refused bailout funds from the European Central Bank (ECB). While the economies went into free fall with steep contractions of around 21 percent, they were better positioned to face the fallout than any other region, except Poland. Baltic’s GDP of 5 percent makes it a leader of the countries that made up the European Union (EU).
The people from the Baltics are a haughty and proud race. They have been on their own since 1991 and proving that they can survive the holocaust of Soviet domination for ages. A positive sign of their going forward is the privatization of a number of publicly owned companies in the next few years.
Columbia is not only known for its precious stones like emerald, but for its rich natural resources as well — coffee, gold, petroleum and sugar cane. Though it had gotten bad press for drugs and violence before, it has now cleaned up its act and has signed a free-trade agreement with the United States. It has a robust growth rate of 8 percent and low leverage of about 30 to 35 percent of GDP.
To recap, each emerging market should be evaluated on their own strength and weaknesses. A diligent investor who is on the lookout for earning opportunities should conduct his own in-depth research to discover opportunities in each of the markets.