As geopolitical tensions between the East and West rise, sanctions and souring relations could have lasting impacts on business globally.
Many investors have flocked to emerging markets in recent years, thinking of them as a mainstream choice. But the very recent troubles on the global markets – China’s failure to slow its decline, the US Federal Reserve’s decision not to raise rates in September, and a stronger US dollar (to name but a few factors) – have caused some level of discomfort. The turmoil is a stark reminder that it’s important to hold your nerve when the going gets tough.
For those prepared to stay the course, emerging markets can give the opportunity to diversify and balance business portfolios. Every year brings fresh optimism to investors looking for an emerging market that will prove worthwhile, and 2016 will be no exception.
The traditional powers of Russia and China have had trouble since the turn of the year. Russia has been subject to sanctions from the US and European Union following the annexation of Crimea in March 2014, and China's stock exchanges have plunged.
China’s central bank has been keen to calm fears, issuing assurances that its cut in the guiding rate of the yuan was not the beginning of a depreciation, and some experts have argued that it would be a mistake to see China’s extreme market volatility as evidence of the state of the Chinese economy as a whole. Nevertheless, many investors are looking at other emerging markets for value.
Which emerging markets could be the success stories of the end of 2015?
Some of the traditional BRIC (Brazil, Russia, India and China) nations have proved to be more enduring than others. While the likes of Russia and China have become less attractive investment options, India is still a solid BRIC nation.Many experts are predicting an upturn in growth over the coming months thanks to policy changes. The addition of increased foreign investment has meant India has been able to improve its manufacturing, hydrocarbons, insurance, defence and railway sectors.
Prime Minister Narendra Modi has consolidated power in the country, which should signal the start of structural changes that will allow India to move forward. Manufacturing, in particular, has seen its outlook improve.
HungaryRanked by Forbes in March as the best emerging market, Hungary remains an attractive proposition for investors. In the opening months of 2015, it was trading at 8.4 times above its forecast 2013 earnings, even as it was 11 times below the emerging markets aggregate, the sovereign spreads were at 108 basis points below the 24-month moving average.
One of the driving forces behind Hungary's growing economy is its property market. In July, residential property prices grew by between 20% and 30% since 2014 in Budapest alone, according to reports by Reuters. Interest rates have been kept at a record low of 1.5% and tourism has helped to improve the country's performance.
MexicoLatin America has often been seen as an attractive proposition for investors, although the Mexican economy grew only 1.3% last year. Since the election of President Enrique Pena Nieto in December 2012, Mexico has been undergoing a full reform process with a host of changes taking place across the board.
Energy, labour, telecommunications and education, as well as the government's fiscal framework, all sit at the heart of an economic resurgence. The government is also open to attracting more foreign investment. An expanding US economy could also benefit Mexico, with more tourists and Mexican citizens entering North America to work and sending remittances back home.
MalaysiaDespite the major tragedies the country has suffered in the past 18 months, Malaysia has generally been regarded as one of Asia’s success stories with EY expecting solid medium-term growth of 4% to 4.5%. The crashes of Malaysia Airlines flights 370 and 17 within the space of a few months in 2014 put the future of the state airline in jeopardy, but this year could prove to show the resilience of the nation.
Prime Minister Najib Razak is on course to deliver an economic transformation programme to boost Malaysia’s current growth rate. This will include the introduction of further tax incentives for foreign investors, while there will be a further liberalisation of both the manufacturing and financial services sector.
Emerging markets come with unique challenges in the medium term, but they can hardly be ignored. It’s important that if your company decides to reach out for the opportunities that you also evaluate and recognize the risks.