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