Young populations. Low debt. Rapid industrialisation. Light taxes, and not much in the way of troublesome regulations to get in the way of businesses. For a generation or more, and certainly in the 15 years this magazine has been around, investors have got used to the idea that the most exciting returns are to be found in the emerging markets.
The safe, developed economies of Europe and America might be the core of any portfolio, but it was the likes of Vietnam, Mexico, or Nigeria that would spice up returns. The trouble is, this year the markets seem to have lost the script.
The shine has come off the developing world. The Brics – Brazil, Russia, India, China, and South Africa – now look to have been massively overhyped. Only China looks like a potentially major industrial player any more – and with its growth engine stalling, we can’t even be sure of that.
As for the countries that were meant to be following them – the Mints (Mexico, Indonesia, Nigeria and Turkey), or the Next Eleven (or N11: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam) – they hardly look any better. If you’ve invested in those regions, the chances are you’ve lost money over the last few months.
There is a case for arguing that this is more than just the volatility you expect from any market. One explanation is the collapse of commodity prices, on which many developing economies rely. Another is the strength of the dollar: most have a lot of debt in that currency, and as that has risen in value the fragility of their finances has been painfully exposed.
In many countries, reform has run out of steam, and corrupt oligarchs have reasserted their control over local monopolies. It is also true that the really exciting growth right now is in technology, not in countries. The Fang trade – Facebook, Apple, Netflix and Google – looks a lot more attractive than the Bric one, and may well be where the real growth is to be found over the next decade.
For all those reasons, the newer economies may not be as attractive as they were at the start of the decade. But it is wrong to write them off. What really counts is how much progress they are making under the surface. The World Bank’s “Ease Of Doing Business” survey this month showed a lot of the developing economies making huge progress as markets where businesses can be created and built. There were some surprising results.
Despite the imposition of sanctions, and the increasingly authoritarian nature of Vladimir Putin’s regime, Russia has seen a substantial gain in its overall competitiveness. It has gained 11 places, rising from 62nd in the world to 51st, the best performance of any of the Bric nations. Or take a look at Kenya – it’s risen by 21 places in the rankings.
Uganda was up by 13 places and so was Kazakhstan. The Czech Republic saw a big jump and so did Mexico. Indeed, even some relatively minor emerging markets are just as good for doing business in as their bigger, developed rivals. Macedonia, for example, ranks as the 12th best place in the world to do business, ahead of Canada and Germany. Tiny Estonia comes in 16th, ahead of