Emerging Markets: Looking for Opportunities
This post discusses the advantages of investing in emerging markets against developed markets.
Nowadays markets look quieter, however, uncertainty continues. Economic slowdown seems clearer in developed countries such as United States, Japan and European Union. In contrast, emerging economies, led by China, are the engine of the recovery across the world and financial markets are reflecting that. The best question is what would happen in the second half of the year? Will markets recover the uptrend?
Geographically speaking, U.S. position seems to be in a strong position than Japan’s and EU’s despite the slowdown in GDP growth announced last Friday due to smaller private consumption. Japan is fighting against the dramatic “deflation” that is hitting hard the country over the past 20 years. EU does not have a unique policy against its fiscal and debt problem. While many countries are speaking about the maintenance of stimulus packages to avoid a W recession, many European countries announced incredible spending cuts to preserve credibility in markets. The euro is trying to stabilize in a range between 1.25 / 1.30 but nobody can project its future trend. In my opinion, the euro should go down in order to make European exports more competitive and in this way find a key to pass its difficult moment.
What is happening in the emerging economies? Exactly the opposite. Many governments are taking measures to cool their economies because of the rapid growth. China declared that it will grow at a 9% rate from the 11% previous in the first half of the year. Brazil is growing at a 7% rate and the last movement of its Central Bank was to hike interest rates to stop inflation pressures. Russia and India are growing too. Consequently the BRIC (Brazil, Russia, India and China) group is pushing the global economy. In other economies such as South Korea the growth is accelerating.
Actually Latin American region is having a great moment. Chile, Peru, Paraguay, Uruguay and Colombia succeeded in their ways to recover growth while inflation is still low. Argentine is growing at 8% rate but the inflation remains the main problem for the government. Despite the latest rally in equities and bonds markets Latin American companies are still attractive because of their low ratios.
For example, Argentine market stock exchange, a subject I feel more comfortable, is averaging a volume of $ 10.0 million daily. Imagine the value that foreign institutional investments can find if they decide to invest in that market. Of course there is a lot of uncertainty about next government steps, but if you want more returns you necessarily have to take more risk.
In conclusion, emerging markets seem more attractive than developed ones not only for their lower valuations but for the rapid growth of those economies. This means better perspectives for corporate earnings.
Meantime, try to understand what is happening over the world and to have the timing when you do your next investment operation. Good luck in this matter!