Emerging Markets – Tomorrow’s Biggest Economies?

Before I start, it is best that I point out that this article does not constitute advice. Just because I am writing about Emerging Markets, does not mean I am recommending them to all and sundry! There are many reasons (not just associated with risk) why investing in companies operating in Emerging Markets (EM) is inappropriate for some. However for others, having an appropriate exposure (taking into account their objectives, risk tolerance and circumstances) might be.

EM assets are usually more volatile than traditional or developed assets, they can be more susceptible to currency movements and political risk and there are greater social issues, such as population inequality, a possible increase in protectionism, human rights and the impact on the global environment.

Some countries have been emerging gradually for many years, while others for a shorter time, with more significant annual growth increases. There are various definitions as to what constitutes an Emerging Market economy, but one thing is for sure, the league table in terms of global economy size is in a period of transition which will continue over the next 20 years+.

The graphic above comes from a report produced by The World Bank and shows the make up of the global economy in 2018. These are the 40 biggest contributors as measured by Gross Domestic Product (GDP). Full details –  https://www.weforum.org/agenda/2017/03/worlds-biggest-economies-in-2017/

I saw some figures last month from J.P.Morgan Asset Management that showed in the last 20 years the number of recognised Emerging Market (EM) economies has gone from 10 to 24. However a better indication of the emergence of these economies is that in 1988, the market capitalisation of EM was 52 Billion US $ (representing 1% of global equity markets), whereas now in 2018 it is 5.5 Trillion US $ (representing 12% of global equity markets).

In the 1980’s the companies in these EM economies were heavily skewed to commodities (natural resources such as gold, rubber or oil as well as agricultural products like corn, coffee and sugar), however just 20 years later in 2018 and the company landscape is dominated by Financials and IT companies.

So what about the future? Well with the UK’s need to secure trade deals with different countries or country blocks, like the EU, I was reminded of an excellent report produced in 2016 by Pricewaterhouse Cooperhttps://www.pwc.com/gx/en/issues/economy/the-world-in-2050.html

This indicated the countries that might make up the global economy in 2050. While the potential top 3 (by GDP) are well known and expected to be China, India & the U.S. in that order, it’s interesting to note that countries such as France, Germany and the UK are expected to be overtaken by Mexico, Turkey and Vietnam.

Author: Phil James, Grosvenor Consultancy Ltd

There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise,  you may not get back the full amount you invested and past performance is no guide to future performance.

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