Emerging markets are nations in the process of
rapid growth and industrialization. Currently, there are more than 20
emerging markets in the world, with the economies of China and India
considered to be by far the two largest.
MSCI Barra classified the following 21
countries as emerging markets:
Good demographics : Each week, more than one
million people are born into or move to urban areas in emerging markets.
By 2025, the United Nations reports, 21 of the 25 largest cities in the
world will be in developing nations.
Superior growth potential : Over
the next three years, developing countries are expected to spend more
than 200 times more than the U.S. Almost $4 trillion of this estimated $6.3
trillion outlay is linked to China.
Major commitments also are
coming from governments and private sources in Brazil, India, Russia,
Mexico, South Africa and the Middle East.
Emerging markets have access to capital to
make these investments happen, unlike a decade or so ago when they were
considered low-quality, high-risk backwaters.
Less debt at the consumer, corporate and
government level. These countries are in sound financial shape, and not as
leveraged as mature North America, Europe and Japan.
Three
of the hottest infrastructure sectors in emerging markets: energy and
power; transportation and logistics, and water and the environment. This
is where the big money will be spent by 2013 -- accounting for about 80%
of the $6.3 trillion estimate.
Big developing countries like
China, India and Brazil, along with often overlooked but strong ones like
Chile, generated 70% of the growth in global domestic product in 2010
It is suggested that investors
allocate at least 20% - 35% of the assets in their portfolios to emerging
markets. It's a way of offsetting excessive exposure to U.S. markets
that appear trapped in a trading range;
In recent years, new terms have emerged to describe the largest developing
countries such as BRIC that stands for Brazil, Russia, India, and China,
along with BRICET (BRIC + Eastern Europe and Turkey), BRICS (BRIC + South
Africa), BRICM (BRIC + Mexico) , BRICK (BRIC + South Korea) and CIVETS
(Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).
Risks:
Political risk tops the list. Government bureaucracy and regulation can
slow development and limit profits. In addition, state funding could be
cut or priorities altered; China, for example, is emphasizing water
projects and shifting somewhat from railways.
These
high-profile developments are capital intensive and may not generate revenue for many years.
