Emerging markets are rapidly developing economies transitioning from pre-industrial and underdeveloped states to modern economies with higher standards of living. The five largest emerging economies worldwide are the BRICS nations: Brazil, Russia, India, China, and South Africa. These markets are often overlooked and traded at lower valuations, offering higher returns for investors.
“We believe EM equities are one of the most mispriced asset classes globally in terms of improved earnings growth and financial productivity, as indicated by return on equity, free cash flow yield, and dividend yield”- Lazard Asset Management [14]
Source 15
While emerging markets have seen increased foreign direct investment (FDI) over the past years, as worldwide monetary policy shifts, there will be an increase in both the amount of investments and the growth of these markets. Along with easing monetary policy, emerging markets also stand to gain in growth as the markets recover from the aftershock of COVID-19. Furthermore, as a result of higher rates and slow economic recovery, emerging markets are trading at lower valuations.
The high returns of emerging markets don’t come without risks. Global conflict has slowed the trade of these markets, as the chokepoint in the Suez has worsened. An increase in conflict would further slow the pace of international trade. Another risk emerging markets face is the potential nationalization of production by first-world countries, which would lower the exports of emerging markets.
Top markets:
Guyana
Ireland
China
Vietnam
Philippines
Guyana
Guyana is the fastest-growing new oil producer, with over 11 billion barrels in oil reserves [1]. This major advantage has positioned Guyana to be forecasted as the fastest growing economy worldwide, with an expected CAGR of 19.8% between 2024 and 2029 [1]. This has made Guyana the most attractive geographical region for emerging markets.
Compared to its fellow South American countries, Guyana ranks relatively low on the world corruption index, ranking 87 out of 180 [2]. While this may seem high, Guyana is one of the less corrupt countries in its region and has seen massive decreases in the amount of corruption over the past years.
Global Marine Traffic
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In 2022, Guyana saw $4.4 billion in foreign direct investment [3]. Along with its oil reserves, Guyana’s strategic location along the waterways of the Atlantic made it a prime target for FDI. With its oil reserves, its location makes exporting oil by tanker a simple process. The current concerns faced in Guyana are political stability, a lack of infrastructure, and potential economic overheating in the future due to its oil boom.
In 2022, Guyana saw $4.4 billion in foreign direct investment [3]. Along with its oil reserves, Guyana’s strategic location along the waterways of the Atlantic made it a prime target for FDI. With its oil reserves, its location makes exporting oil by tanker a simple process. The current concerns faced in Guyana are political stability, a lack of infrastructure, and potential economic overheating in the future due to its oil boom.
Ireland
While not typically thought of as one, Ireland is one of the most advanced emerging markets in the world. Home to the single most productive workforce in the world [1], Ireland has the advantage of a highly skilled workforce and built-up infrastructure. Ireland's tax laws have made it the preferred location for many international companies, which boost its economy [5]. Ireland also has the 3rd highest GDP per capita at $103,893 USD [6]. With its wealth and productivity, Ireland is considered one of the safest emerging markets to invest in, as Ireland’s main and only concern for foreign investment is a higher cost of living compared to other emerging markets.
China
China is home to 1.4 billion people and the second largest economy in the world, only behind the USA. China, along with its BRICS counterparts, is the single largest emerging market worldwide. The reason China is one of the largest economies worldwide is due to its role as a global manufacturing hub, one of the largest producing and exporting economies. China’s geography and vast amount of port cities make it a very strategically located country. China is home to many technological innovations and, from an upside-only perspective, is by far the most attractive emerging market. However, China poses a very large amount of risk. Firstly, China has an authoritarian government, causing large concerns for regulation and intellectual property law. In recent years, China’s stock market performance has been lackluster. Most concerningly, China has been threatening war on the geopolitical stage, and if the government followed through on their threats, it would, to say the least, be very bad for any foreign investment holdings in the country.
Vietnam
Vietnam is currently one of the fastest-growing economies in Southeast Asia, with a GDP CAGR of 8.12% [7]. Vietnam is across the board considered the best all-around emerging market. A recent report by Price Waterhouse Cooper stated that Vietnam would have the single largest increase in GDP of any country internationally between the years 2024 to 2050 [11].
Vietnam GDP Per Capita
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While Vietnam's GDP per capita is far lower compared to countries such as China or Ireland, it has one of the fastest-growing GDPs per person in the world. This is spurred by Vietnam’s growing middle class, newly some capitalist markets, and urbanization across the country.
Global Marine Traffic
Source 4
A main driving force for the development of Vietnam is its strategic location. Located in one of the busiest shipping waters internationally, Vietnam acts as a critical gateway in the ASEAN markets. As Thailand, Cambodia, and Laos develop and increase their imports and exports, Vietnam reaps the benefits of its neighbors developing alongside itself.
Vietnam ranks 83 out of 180 on the international corruption scale, far better than its neighbors in Cambodia (158), Thailand (108), Laos (136), and Myanmar (162) [2]. Vietnam has also made massive strides in stamping out corruption over recent years, evidenced by the increasing score. Between January and April of this year, Vietnam received approximately $6.28 billion USD in FDI. The main concern in the Vietnamese economy is an overly bureaucratic government [10]. Vietnam is a one-party rule authoritarian government run by a communist party. While Vietnam has capitalist markets, the socialist aspect of the government poses a risk to investors mainly due to the bureaucracy of the system.
Philippines
The Philippines is currently one of the fastest-growing emerging markets [13]. Price Waterhouse Coopers projects that the Philippines will have the second largest growth in GDP between the years 2024 to 2050 [11]. A driver of this growth is the Philippines' population of 118 million with an average age of 25 [12]. The Philippines has a beneficial geographical location in the middle of the Ring of Fire. The largest risk in the Philippines is the level of corruption. The Philippines is ranked as the 115th least corrupt country out of 180.
Sources
https://www.investopedia.com/ask/answers/060316/why-ireland-sometimes-referred-tax-haven.asp
https://www.statista.com/statistics/444616/gross-domestic-product-gdp-growth-rate-in-vietnam/
https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?end=2022&locations=VN&start=2000
https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html
https://www.lazardassetmanagement.com/research-insights/outlooks/emerging-markets
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