Investors: Look Beyond Short-Term Strife in Emerging MarketsInvestors willing to take short-term risks may see bountiful returns. Here are 3 tips on how to do that.
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This summer is turning out to be a somber one in many emerging markets.Recent slowdownsin China, India, South Africa and other developing nations have shaken investor confidence in the post-recession global economy. Political strife is adding to the grim situation and depressing hopes of a bullish rise in the near term. Consider:
- In Britain, therecent Brexit voteinitiated a market plunge and chilled relations across the European Union.
- In Brazil, Senate impeachment proceedings are in motion against President Dilma Rousseff. Thespeaker of the Lower Househas also been suspended, complicating the succession questionif Rousseff is forced out of office.
- In Argentina, there aredemands for the resignationof President Mauricio Macri, who had been in power only five months when the protests began over his possible ties to the Panama Papers corruption scandal.
- In Venezuela, that nation's economic crisis continues to incite anti-government sentiment, while President Nicolás Maduro nowfaces the threat of impeachment, as well.
- In South Africa, President Jacob Zumadodged impeachmentthis past April, but he's still plagued bycorruption allegations. The widening rift between the ruling African National Congress and the Economic Freedom Fighters hasn't helped matters.
It almost seems like the current political volatility spans the entire globe, undermining efforts to prop up faltering economies and scaring investors away from emerging and frontier markets.
But success in these markets requires a long view. Investors should be more worried about the current panic blinding them and causing them to miss out on long-term opportunities on the horizon.
Overstating the risks
Whenever political or economic dust-ups occur in emerging markets, investors get nervous. Outside observers overstate the risks, and everyone assumes the worst. But it's crucial that investors look beyond the fearful headlines and see the reality of these situations.
Brazil and Argentina are good illustrations: They are South America's largest and third-largest economies, respectively. Theircumulative GDP is about $2.9 trillion, roughly the same as the economies of France and the U.K.
São Paulo, Brazil, in fact, came in 12th in theGlobal Startup Ecosystem Ranking 2015, making it comparable to Paris and Singapore.
Yes, there are problems in Brazil and Argentina right now. But they will remain smart investment prospects for the next several years, as will several other South American economies. South America as a whole is on the rise, and investors need to look beyond the current hysteria to see what they can achieve when the political dust settles.
Africa's investment promise
Then there's Africa: Investors there have taken a more cautious position on its major markets since theDoha talks collapsedin April. The talks were meant to cap output in major producer states, and fears of ongoing fiscal challenges arose when the discussions fell apart. However, the failed talks provide an opportunity for a much-needed policy rethink and a rebalancing of these economies away from oil.
Angola'sU-turn on fuel subsidiesin 2014 marked a major turning point in fiscal policy for the country that is Africa's second-largest oil producer. That paved the way for a$650 million investmentin Angola's agricultural sector, from Hasan Group and Forever Green. Ongoing efforts to diversify Africa's oil-dependent economies have unleashed enormous investment opportunities in non-oil industries.
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Regional integration will also provide a boon to labor and consumer markets. Ghana recentlyeliminated visa requirementsfor all African citizens, setting a precedent for free movement across borders. This bodes well for discussions around the proposed Tripartite Free Trade Area, which would incorporate the East African Community, the Common Market for Eastern and Southern Africa and the Southern African Development Community.
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在整个非洲,另一个考虑是中央英航nking, which is taking on new meaning, as key exports markets such as China disappoint and policy-makers ponder ways to stimulate domestic consumption. Kenya, for instance, is working to lower the cost of credit. Improved financial products and access to credit will create unlimited potential in Africa during the next decade.
So, what are "next steps" for investors? While the current landscape seems dire, real opportunities for investment exist in these difficult regions:
1. Consider Brazilian exports.
As investors contend with disappointing domestic demand stemming from the economy's anemic performance, the weakened currency creates an opportune environment for investors to tap into the export market. The presence ofApex-Brasil, the body tasked with fostering the competitiveness of local companies abroad, widens investors' potential reach across the globe.
2. Look to positive relationships with Spain.
While Brazil has endured recent hardships, Spain's economy has made a powerful recovery of late. Businesses can also leverage the recovery of Spain's economy, given recent commitments by the two countries to fosterbilateral tiesand double trade by 2025.
3. Explore smaller markets with bigger prospects.
In Africa, the slump in markets such as Nigeria, Ghana and South Africa has allowed smaller pockets of growth -- such as Côte d'Ivoire, the Ivory Coast -- to spring to the forefront, creating an opportunity for investors to rebalance their footprints on the continent.
In May, the West African economyindicated plans开放电力和水的分布,raising hopes for a more solid infrastructure. Investors should not overlook such markets, which are increasingly providing satellite hubs away from traditional favorites that are currently stumbling.
Related:Breaking Into a Volatile (But Rewarding) Emerging Market
Bold reforms are under way in emerging markets such as Brazil and Argentina, and frontier markets such as Nigeria and Ghana. Tumultuous as they may seem, these reforms would not have been possible in rosier macroeconomic environments. Investors willing to take on short-term risk can ride the tide of change that will likely carry in bountiful returns in the years to come. Political strife should not be their only measuring stick.
