Download What are the Emerging Markets?

What are the Emerging Markets?
An emerging market is a country that has some
characteristics of a developed market, but does not meet
all the standards to be a developed market.
Originally brought into fashion in the 1980s by then World
Bank economist Antoine Van Agtmael the term is
sometimes loosely used as a replacement for emerging
economies, but really signifies a business phenomenon
that is not fully described by or constrained to geography
or economic strength; such countries are considered to be
in a transitional phase between developing and developed
status.
I like to think of EMs as countries that are growing
very quickly, for good reasons, and that have a
good chance of graduating into developed status
in the future.
Countries that are growing faster than most developing countries
but are not yet newly industrialized.
“Starting in the year 2003, an underappreciated turning point in the course of the world,
this good fortune suddenly spread to virtually all emerging nations, a class that can be
defined a number of different ways but here broadly means countries with a per capita
income of less than $ 25,000.” --- Ruchir Sharma, Breakout Nations
Emerging Markets have been trading flat
since the end of the Great Recession
Individual chapters on China, India, Brazil, Russia, Mexico, Turkey, and South Africa,...as well as
Central Europe, Southeast Asia, and elsewhere
Mr. Sharma has two important and general points to make.
First, the period of 2003-2007, in which there was incredible growth
throughout the emerging world, is gone. It was an unusual period not
likely to be repeated.
Second, we must no longer think of these economies as homogeneous
groupings, as perhaps we did before. In order to predict which
economies will do well in the future, we must look at each country on a
case by case basis. Some of these countries will prove to be solid and will
break out from the slower growing pack. Those are the breakout
nations, but there is no single formula for the breakout. Instead there is
only a long list of ingredients that will make the breakout likely
http://emergingmarketsblog.wordpress.com/2012/05/20/searc
hing-for-breakout-nations-in-a-sea-of-emerging-markets/
Nice Summary (Unscientific) of Sharma’s book by David Gates – an
analyst
Some Salient Facts Drawn from Sharma’s Book
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Capital inflows to EMs grew 92% (2000-2005) and 478% (2005 – 2010)
Strong & widespread EM growth began in 2003
2007 185 countries had positive growth, 114 grew faster than 5%
Russia went from $1500 to $13,000 per capita income (2003 – 2012)
1980 only 16 countries held inflation below 5%, by 2006 103 countries did it.
1970s
$1 debt produced $1 GDP,
1980s & 1990s $3 debt produced $1 GDP,
2000 – 2010
$5 debt needed to produce $1 GDP
-- Out of 180 countries only 1/3 can grow at 5% for one decade
only 1/4 can grow at 5% for two decades
only 1/10 can grow at 5% for three decades
only 6 countries grew at 5% for four decades
only 2 countries grew at 5% for five decades (Taiwan and SK)
-- New Normal for Growth US 2-2.5%, Eurozone & Japan 1-1.5%, EMs 3-4%, China 6-7%
-- EMs very different: You must consider their macro variables, and then “kick the tires”
Sharma states that there is no “magic formula” for
growth...many factors come together to produce the outcome...
-----------------
free markets in money and people
large amounts of saving that are productively employed
a banking system that makes good investments
strong property rights and a firm respect for the rule of law
low and stable fiscal and trade deficits (or surpluses)
a low and stable rate of inflation
open environment for investment by foreigners
better roads, feed the children, provide a good education
This is very much like a “positive business environment” that I
have been pushing in the class.
You can buy Sharma’s book as a Kindle version or you can listen to it as an audiobook.
Thank You for Listening
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