present in these countries: from fiscal conditions and environmental rankings to political freedom and ease/accessibility of starting a business, and many others.
Country by country
The second part of the book is devoted entirely to the 18 emerging markets. This section starts with a brief modern history of each country to provide readers with context. This is followed by a detailed analysis of each country to assess how it stacks up on the ten drivers of growth.
It should come as no surprise that each country covered is a mixed bag. There are positive dynamics running through many of these markets, alongside some major challenges. Frankly, there are no clear-cut winners. But, as readers will also likely determine, there are countries worthy of consideration. At the end of each country chapter a very brief summary is presented, in a section called ‘In a Nut Shell’.
By exploring the positives and negatives, and upsides and drawbacks, of these markets readers will gain an understanding of the trends and opportunities as well as the risks.
Sorting countries – standouts and struggling
In Part Three an answer is sought to how the countries should be sorted based upon whether they are standouts or strugglers when assessed by the ten drivers of growth. Readers are invited to use the analysis to arrive at an answer.
Investment opportunities in selected countries
Part Four of the book is devoted to suggesting investment opportunities within the selected countries. Readers will find this a good starting point before moving on to their own research into investments in emerging markets.
The Appendix lists many investment funds, including country ETFs and stocks from all 18 countries which are traded on exchanges. A brief description of each available investment is given.
Summary
Aside from taking a long look at the hard numbers, this book rests on the thesis that it is not only the demographics, but a complex set of other factors (both hard and soft) that will play a pivotal role in the future growth of emerging markets. Although most academicians and market analysts acknowledge that demographic factors favour many of the emerging markets, the future will rest on how well these emerging countries use their potential resources – both human and natural – going forward.
This book is intended to serve as a practical guide for all those who are curious about today’s emerging markets. It’s also an investment guide for those that want to take the next step in understanding these markets and take advantage of what may turn out to be unprecedented investment opportunities emerging within them.
Chapter 1: What is an emerging market?
The term emerging market conjures up an array of images. Faraway countries. People toiling away in factories and fields. Densely-packed urban centres teeming with millions. Chaotic marketplaces with hawkers and peddlers. Children in uniform. People riding bicycles, pulling rickshaws and driving trucks on dusty, impassable roads.
These are the places that host more than three-fourths of the world’s population, most of the world’s land mass, and half of the world’s energy consumption. Emerging markets and the countries that contain them span continents.
Some emerging market countries are democratic in the Western sense of the word, with enshrined freedoms. Some are struggling for freedom. Others have carved out their own systems that border on state control. Emerging markets are diverse, ranging from struggling to sterling success and in many cases this is independent of political structure.
Definition
Emerging markets are defined more by what they are not than by what they are. They are certainly not developed markets like the US and Europe. Beyond that, there is a lot of debate as to what truly constitutes an emerging market. Most agree that the centrepiece of the definition rests on the thesis that in these countries:
1 political and financial institutions are less developed or transparent, and
2 governance lacks predictability.
There is a widespread belief that most of these countries have less than adequate rule-of-law and lack clearly defined property rights.
In short, the rights, rules and governance one takes for granted in the developed world are wholly or partly absent in developing or emerging markets. The Center of Knowledge Societies describes emerging market economies as “regions of the world that are experiencing informationalizations under conditions of limited or partial industrialization.”
There is a reasonable consensus that income and consumption levels, which tend to be low compared to the developed markets, define emerging countries. But both emerging market income and consumption are on the rise. Trade and globalisation are pushing many of these countries into the limelight as they exploit their dominant human potential using current technology and natural resources.
Beyond that, there are several points of disagreement. Some emphasise quantitative factors, such as GDP or GDP-per-capita, population statistics, growth rates, etc. Some suggest qualitative factors such as system of government and/or the level of transparency. Others feel that socioeconomic factors such as literacy, health, and the status of women and children are important considerations.
As such, articulating a single definition of emerging markets, and getting agreement on what such a market is or what countries may be called emerging, has proven to be extremely difficult. A clear consensus does not exist and perhaps it never will.
Related to this, there is no single factor that is likely to propel emerging markets. What is important is a combination of quantitative, qualitative and sociopolitical factors (which, for convenience, we shall group together and call the ten drivers of growth). These factors will be critical in determining the fate of many of these emerging nations.
Millions of aspirants
The rich, developed world has reached the peak of its consumption. Its aging population is a demographic time bomb – particularly for Western Europe and Japan. These countries, along with the US, have been the bulwarks of growth led by consumption. Who will replace this population of consumers as they dwindle in numbers?
The logical answer is found in the currently low-consuming billions who live in emerging markets. This is where (in economic terms) the supply and demand curves are likely to intersect over time. The needs of the emerging markets are as wide as they are deep – from improved infrastructure and healthcare to food and education. The hope is that supply of goods and services, and transfer of technology and knowledge (abundant in the developed nations of today), will find its way to the developing world in an orderly manner and enhance the opportunities and living standards of millions.
Multinational corporations today know this. They are feverishly pursuing the markets in emerging countries, and in many cases achieving disproportionate shares of profits from the rising demand that exists there. These companies even recognise that in order for them to prosper it is not sufficient to export goods manufactured cheaply in these emerging countries; they must go beyond that and utilise locally-created human capital and innovation.
Companies
