A Closer Look At Emerging Markets

We hear the use of the term ‘emerging markets’ almost daily in the investment world, but what the region can offer investors and where the geographic boundaries lie, is often unclear.

There is no one fixed definition of the emerging market region but we can use the constituents of the MSCI Emerging Market Index as a general guide. See the red areas on the map above for a visual overview.

In terms of regions; the CIVETS, BRIC, LatAm, MENA and EMEA currently lead in terms of visibility and investor accessibility. Let’s take a closer look:

CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South America): The new kids on the block in terms of growth potential. The CIVETS have been grouped together for their potentially superior growth capability over the next 10 years. Each country has a large young population and a diverse, dynamic economy.

BRIC (Brazil, Russia, India, China): These markets are arguably the most well known within the region. China and India have significantly increased their dominance over the past 5 – 10 years to become global players in terms of economic growth, market capitalisation and business activity.

LatAm (Latin America): Spanning 20 countries within Central and South America and 14.1% of the world’s land mass, the region enjoys a vast and diversified geographic territory. The positive economic development of Brazil has brought attention to the region which in turn has become increasingly more accessible and attractive in comparison to previous years. (source: Wikipedia)

MENA (Middle East and North Africa): This diverse geographic region has historically been subject to political instability but a strong focus on improving corporate governance has helped to move it forward, enabling financial markets to become more stable and attractive.

EMEA (Europe, the Middle East and Africa): Capturing both the investment hub of the Middle East alongside the more newly founded regions of emerging Europe and Africa, the EMEA region is a little more established in the emerging market scene. Fast-moving political and technological activities in Dubai are spearheading the region’s development, which is supported by the vast wealth held in the Middle East.

Why Invest? The investment case for the emerging market region is supported by a broad range of factors. The market’s track record over the past 10-years is appealing in itself as the graph above illustrates. In summary the region offers:

• Rich resource reserves – such as oil, gas and soft commodities


• Supportive demographics – large, young populations


• Strong growth potential – financial markets are growing alongside business activity


• Stabilising political systems – emerging markets are adopting more transparent political structures and addressing corporate governance issues


• Accessible financial markets – rising foreign capital inflows

The investment case for the region is compelling but it is important to remember that new markets are less stable than developed ones. The key risk considerations include:

• Higher market volatility


• Political instability


• New indices - short track records


• Barriers to investment entry and exit

If you are interested in investing in the region please contact us for an independent assessment and recommendation.

SOURCE: HSBC Global Asset Management

For those of you that like to follow current data and statistics here are a few hot of the press from Fidelity relative to UK production and output:

June industrial production was down 0.5 percent and up 1.3 percent on the year. Manufacturing however was up 0.3 percent and 4.1 percent on the year. The sector as whole was held back by earlier than usual oil and gas rig maintenance closures which saw output in this area sink 6 percent on the month. The decline here was compounded by a 5.7 percent drop in the equally erratic mining and quarrying sub-sector. Within manufacturing the best performers on the month were chemicals (2.0 percent), metals (2.1 percent) and food (1.6 percent). Advances here were partially offset by declines in engineering (1.3 percent) and textiles (0.8 percent).

July input prices declined 1.0 percent and were up 10.8 percent on the year while output prices edged up 0.1 percent on the month and were 5.0 percent higher on the year. Factory gate prices were supported by a 0.7 percent monthly jump in food costs that alone added 0.1 percentage points to the headline index. Other smaller positive impulses were to be found in textiles & clothing, paper, metals & electrical and optical goods (all up 0.3 percent). The largest negative impact came from petroleum products (down 1.0 percent) which essentially offset the positive effects of higher food costs. Core output prices edged up 0.2 percent on the month and were up 4.7 percent on the year. Input prices, down 1 percent, were dragged lower on the month by sharp declines in home food materials (4.0 percent), crude oil (2.3 percent) and imported parts & equipment (0.5 percent). The only increase in prices of note was in fuel (1.9 percent

Double-Dip Fears: Justified or Scare-Mongering

Just as soon as the war against recession was apparently won along come the infamous "double-dip" fears.

If the month of June was anything to go by we at Ferguson Oliver were extremely nervous that double-dip might just be more of a possiblity than had previously been considered. That said after attending investment seminar after investment seminar it became clear that there was still a bullish air hanging around and despite all the negative news appearing on our TV screens most economists I listened to were remaining up-beat mainly in the hope and belief of strong corporate results.

July & August appear to support the bulls with a strong bounce back and numerous healthy corporate returns. So has the fear of a double dip left our shores or should we still be wary.

With a wide range of different opinions I will leave it to far brighter minds than mine to express where we sit at present.

• A recent consensus of business minds quoted the possibility of a double dip at 10%-15%.

• This morning an e-mail arrived in my inbox quoting Schroders house view as "While we expect growth to moderate, we also believe that there is now enough momentum built up to avoid a double-dip recession".

As we all know by now we cannot count anything for certain and bad news might just be lingering around the corner. There is no doubt balance sheets are strengthening and with dividend income on the rise the stronger corporate sector might just manage to help us win the next battle.

So we will watch the next phase of the recessionary curve with great expectation.