Emerging Markets - Investment trends not to be missed

For modern investors, understanding Emerging Markets (EM) is essential to grasp the shifts in the global economy. Currently, countries in emerging markets are no longer solely reliant on manufacturing and agriculture but are filled with technology and innovation companies that drive the global economy, which is a key highlight of emerging markets today.

What Are Emerging Markets and What Role Do They Play?

Emerging Markets or ตลาดเกิดใหม่ are countries that are strong and expanding economically. They are characterized by a GDP growth rate much higher than developed countries. Typically, they have large and active labor forces, which are the main drivers of consumption and investment.

Emerging markets can be divided into three main regional groups:

1. Asia: Thailand, South Korea, China, India, Malaysia, Philippines, Taiwan, Indonesia, Pakistan

2. Latin America: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela

3. Eastern Europe and Middle East: Czech Republic, Hungary, Poland, Russia, Israel, Jordan, Morocco, Egypt, South Africa, Turkey

Key Characteristics of Emerging Markets That Investors Must Know

Emerging markets have the following prominent features:

• Strong economic growth: The GDP growth rate of emerging markets often exceeds that of developed markets, coupled with a growing working-age population creating a new middle class with high purchasing power.

• Financial systems still developing: Access to capital and risk management still have gaps, but financial institutions are rapidly evolving.

• Open to global markets and international trade: Liberalization and free trade are increasing, along with awareness and resolution of trade issues.

• Political risks: Political instability and policy changes can impact investments.

• Emerging industries growing rapidly: Tourism, food, technology, and clean energy sectors offer many investment opportunities.

• Potential workforce: Dense populations with increasing education levels are attractive for investment.

What Are Developed Markets (Developed Markets) Like?

Developed Markets are countries with the highest levels of economic and financial market development, including the United States, Europe, the United Kingdom, Japan, and Australia. They are characterized by:

• High per capita income, with a focus on education and training.
• Advanced healthcare systems, quality care, and low poverty rates.
• Strong industrial and service sectors, with high investment in science and technology.
• High-quality education, with a large educated population.
• Political stability and good governance.
• Comprehensive welfare systems, acceptance of diversity.
• Stable financial systems, strong capital markets, and stable investments.

Comparing Emerging Markets and Developed Markets

Investors planning their portfolios may hesitate. Whether to focus on EM or developed markets depends on their preferences. Both are attractive, but returns and risks differ.

MSCI Emerging Markets Index – The Main Indicator of Emerging Markets

The MSCI Emerging Markets Index is a financial index used to measure the performance of securities in emerging markets, developed by MSCI Inc. (Morgan Stanley Capital International), a provider of index creation and financial analysis services.

Key features:

• Includes securities from China, Brazil, India, Russia, and other EM countries experiencing economic growth.
• MSCI continuously updates the index to reflect changes in stock exchanges.
• Index weights are adjusted based on company market capitalization.
• Used worldwide by investors and funds as a benchmark for analysis and performance comparison.

Investors can choose to invest via ETFs or funds that track this index. Many also use CFDs or contracts for difference for greater flexibility.

5 Major Emerging Markets – The BRICS Group

BRICS is an acronym for the largest emerging market countries:

• Brazil (Brazil)
• Russia (Russia)
• India (India)
• China (China)
• South Africa (South Africa)

BRICS plays an increasing role on the international stage, especially in economics and finance. They can be new power centers in the global economy, challenging and balancing the influence of the US and EU.

The term BRIC was coined by Jim O’Neill, head of global economic research at Goldman Sachs. It symbolizes the shift of economic power from G7 to emerging countries. BRICS accounts for about a quarter of the world’s GDP, making it a large market with high consumer numbers and high investment return potential.

Why Should Investors Pay Attention to Emerging Markets?

The main strength of EM investments is their significantly higher GDP growth rate compared to developed markets. For example, US growth before crises was around 2-3% annually, Europe even lower, but emerging countries grow over 3% due to larger populations, especially the working-age group with high purchasing demand, driving better growth.

Top 5 reasons:

1. Highest growth potential: EM economies grow faster than developed markets, potentially leading to higher returns.

2. Portfolio diversification: EM stocks may have low correlation with developed markets, reducing risk and enhancing returns.

3. Undervalued assets: EM stocks may be undervalued compared to developed markets, with growth potential as economies expand.

4. Natural resources and commodities: Some EM countries possess valuable resources, minerals, energy, and have low production costs.

5. Rapidly increasing consumers: The new middle class creates demand for new goods and services, offering industry opportunities.

Pros and Cons of Investing in Emerging Markets

Advantages

• High economic growth: Greater potential than developed markets, offering big business and investment opportunities.
• Valuable resources: Minerals, oil, energy with high worth.
• Low costs: Labor and manufacturing costs are lower, increasing profit margins.
• Growing industries: Technology and craftsmanship are expanding strategies.
• Rising consumer base: Increasing number of buyers makes markets attractive.
• Diversification: Investing in EM helps spread risk.

Disadvantages

• Economic instability: High volatility can lead to financial and political instability.
• Political risks: Some countries face instability and conflicts.
• Legal uncertainties: Laws may be unclear, affecting business operations.
• Weak oversight: Lack of strict regulations in some markets increases legal and safety risks.
• Currency risks: Rapid exchange rate fluctuations can impact returns.
• Price volatility: Markets may be more volatile than developed markets.

Suitable Investment Strategies in Emerging Markets

Besides high returns, many investors are confident in EM’s economic fundamentals. However, EM investments carry high risks. It is advisable to select stocks that:

• Have strong fundamentals.
• Grow in line with global economic recovery.
• Are competitive within their industries.
• Prioritize ESG and sustainability.

For bonds: Focus on government bonds of countries with solid economies, supporting continuous growth.

Risk management:

• Invest proportionally.
• Avoid highly volatile assets.
• Monitor political developments.
• Regularly follow economic and political news.

Summary: Emerging Markets Are a Key Part of Modern Portfolios

Post-COVID, the world situation has changed rapidly, creating challenges for both developed and Emerging Markets investors. The most important thing is to study information thoroughly to create the best return opportunities.

Emerging Markets should not be overlooked. Proper allocation in investment portfolios, with high growth potential and expansion opportunities, supports medium- and long-term investments, helping to build stability and asset appreciation across the board.