“Emerging market” is not just a euphemism for “poor”, says Karthik Sankaran in Barron’s. An emerging market is supposed to converge with income levels in wealthy countries. The US was a fast-growing “19th-century emerging market that first converged and then surpassed the UK”.
But they don’t always make it: 19th-century investors regarded Argentina as an exciting new economy. Today the investment category encompasses a jumble of Asian manufacturers, Latin American commodity exporters and Eastern European states.
Policymaking is improving
A key difference between developed and emerging markets is that the former have reliable legal, political and economic institutions that give investors confidence. Happily, the quality of policy making in many emerging economies is improving. Central banks in Poland, Russia, Mexico and Brazil have been raising interest rates to get ahead of global inflationary pressures, says the Financial Times.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Higher rates protect these countries against a repeat of the 2013 taper tantrum, when tightening US monetary policy prompted a rush of capital out of emerging markets, sending EM currencies plunging. Asian central banks have yet to join the tightening trend, says Nicholas Spiro in the South China Morning Post. Policymakers in developing Asia are betting that vaccinations will enable them to reopen factories, easing inflationary pressure without needing to hike interest rates. But there are risks: amid soaring energy prices, almost “all the region’s economies are net energy importers”.
Investors are instead turning to commodity exporters, reports Bloomberg. Russia has become the “traders’ favourite investment destination”. The “oil and gas superpower” has healthy currency reserves and “an enviably low debt burden”. The rouble has been the best-performing emerging-market currency so far this month. Energy firms make up roughly half of the Russian stockmarket, so it is little surprise that the local MOEX index is up by 5% over the past month. Not that emerging market investors will notice.
The MSCI Emerging Markets index is now dominated by East Asia, says Sankaran. Chinese, Taiwanese and South Korean firms jointly make up 61% of the index. “Brazil comes in well behind at 4.5% and Russia at 3.7%.” The practice of lumping so many different economies into one investment category is “increasingly odd”, says The Economist. Some suggest alternative regional indices, but that doesn’t always work: “The Turkish and Saudi Arabian markets… have little in common.”
Even more confusingly, the index also includes countries, such as South Korea, with rich-country income levels, but whose markets are not deemed open enough to qualify for developed market status. It is “time to experiment” with other ways of investing in countries that make up 40% of the global economy.
-
BP shares gain despite worst results since pandemic on activist investor hopesBP’s shares are on the up despite poor Q4 results, as shareholders look to activist investor Elliott Investment Management to change the oil major’s course
-
Landlords ordered to make rental properties more energy efficient by 2030The government has said rental properties must have a minimum EPC rating of C by 2030. We explain how much it will cost landlords to upgrade their buy-to-let portfolio
-
Primark owner Associated British Foods is an overlooked gem going cheap — should you buy shares?Associated British Foods, the owner of Primark, is a family-owned business, which means it is passed over by the increasingly popular passive investment funds. That spells opportunity for private investors, says Jamie Ward.
-
Trump's tariffs and a shrinking market for alcohol deal double blow to DiageoDonald Trump's tariffs are a further headache for drinks giant Diageo, which is already being buffeted by a decline in alcohol consumption.
-
Three stocks in recruitment companies with promising recovery playsRecruitment agency Robert Walters and its peers are struggling, but now's the time to buy, says Rupert Hargreaves
-
Four UK data companies to buy nowCompanies that create, harness or turn data into a valuable offering could be sitting on a hugely profitable gold mine. Rupert Hargreaves picks four of the best UK data companies to buy now.
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
-
What investors can expect from stocks and the economy in 2025There are reasons for investors to be hopeful about 2025, with slowing interest rates and moderating oil prices. But trouble may be brewing in bond markets
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
How did emerging markets perform in 2024?Emerging markets underperformed their developed counterparts in 2024, but there are signs of recovery. We look at the biggest winners and losers of 2024, and the key trends shaping these markets
