Forget the other emerging markets, focus on Southeast Asia

Panjat Pinang pole climbing contest in Jakarta. © FRED DUFOUR/AFP/Getty Images
Indonesia: still struggling up the greasy pole of growth

“Does investing in emerging markets still make sense?” asks Jonathan Wheatley in the Financial Times. Money managers have always known that the likes of India, Brazil and Mexico are likely to serve up political and business turmoil, but that was balanced by the expectation of strong long-term growth.

Yet the investment risks inherent in these markets have not yielded higher returns, says Jonathan Jones in The Daily Telegraph. The MSCI World index has returned 177% over the past decade, far outstripping the 93% delivered by the emerging markets index.

The turn of the millennium saw the BRICs –Brazil, Russia, India, China – “in their pomp”, says The Economist’s Free Exchange column. Poverty rates tumbled and many believed that “convergence” between the developed and developing worlds was inevitable. Yet Latin America has been losing ground to the United States since 2013 on a real output per person basis, with sub-Saharan Africa following a similar path since 2014. That has left Asia as “the last outpost of convergence” – which is what makes India’s recent growth slowdown a cause for wider concern. With China also recording its slowest growth for almost 30 years in the second quarter, many are asking whether the emerging market story still makes sense.

An arbitrary category

Certainly an index that groups together, “over half of the world’s GDP and a much larger share of its population” is a blunt instrument, says Duncan Weldon in Prospect magazine. Supposedly “emerging” South Korea now has a GDP per capita higher than that of “developed” market Italy, for example. And while problems in Argentina and Turkey last year sparked talk of a “new crisis for emerging markets”, in practice there was no generalised panic that spread beyond these countries – unlike previous occasions such as the 1997 Asian financial crisis. That is an auspicious sign for “sound emerging economies”. Now more than ever it will pay for investors to “be careful and do their homework on individual markets”.

Emerging markets as an investment class are “fast approaching a watershed”, says Michael Power in the Financial Times. The MSCI Emerging Markets index is now “far too varied to be truly meaningful” as a barometer of how emerging economies are performing. Investors would do better to distinguish emerging Asia – a region where nearly every nation’s GDP and productivity growth has beaten the developed world since 2000 – from the likes of Brazil and Russia, where performance remains more closely tied to commodity cycles and the US dollar. With the likes of Thailand, Malaysia and Indonesia also waiting in the wings, the next decade is likely to see emerging Asia move “towards the centre” of the global investment story.