Emerging Markets: Where to Find Lucrative Investment Opportunities

Is the old road rapidly aging – the rise of the next frontier

When it comes to money or investment, we are all in the constant search for the next big idea or the next boom waiting to happen. However, the ever constant in this context is, as Dylan famously sang, ‘the old road is rapidly aging’. In the modern era, the gifted are the ones who can see the road ahead, anticipate what that might mean and make a decision for change early on in what history might become. To be specific, what if you had bought some Apple shares when the first iPhone came out instead of buying that apartment which gave you a 8% yield year on year. Those ‘what ifs?’ can provide a useful lesson.

Renowned economist Ruchir Sharma writes in his brilliant book, The Rise and Fall of Nations, ‘The circle of life operates in all countries but not always at the same speed……..this circle offers a few guidelines for spotting which countries are about to enter a period of rapid growth, and which are about to fall off the growth map.’
If one can oscillate with ease between Bob Dylan’s wisdom and Ruchir Sharma's astute economic brain, where will we find ourselves? We need to be aware that the old road is rapidly aging and keep constantly looking at the circle of life and accurately predict our next golden horizon.

Learning From and Building on Experience

In my career I have worked and lived in 12 cities within 6 countries and worked on projects in a further 6 countries. I have perhaps learned the basics that when it comes to investing there are a plethora of options and many details to consider; however, ROI, growth indicators and any potential risk are among the most important. With all of that in mind and with relevance to today’s context, the countries that stand out are the collective Emerging Markets (EMs). They offer long-term potential with a relatively low entry cost and their expected incremental GDP in the next 10 years will be larger than the average of the G7 economies.

The term EM was coined by Antione van Agtmael of the International Finance Corporation four decades ago. One of the definitions of an EM is, a country that is moving beyond the developing stage into the developed phase. It has some characteristics of a Developed Market (DM) but does not yet meet the standards associated with DMs, although they typically aspire to achieve that status. According to the MSCI Emerging Markets Index, in 2023 there are 24 EMs.

So, Who and Where are the Prominent EM’s?

China / India / Brazil / South Korea / Mexico / Indonesia / Saudi Arabia / Turkiye / Taiwan / Poland

While China is forecast by many economists and analysts to be the largest economy and strongest performer in terms of investment ROI over the coming 50 years, the current slowdown in development and growth brings forward an argument for some EM investment excluding the growing economic power. Indeed, data from bfinance shows that there are now some 45 EM funds, or investment strategies, that exclude China, up from just three in 2017.

This isn’t to say that China is no longer a credible EM investment option - it most definitely is. A recent Goldman Sachs podcast with co-head of CEEMEA Economics in Goldman Sachs, Kevin Daly, highlighted its forecast that China will be the largest economy in around 20 years’ time, or less. However, what this does underscore is the importance of diversification, even within your EM investment strategy. Meanwhile, other EM countries the Goldman Sachs economist hailed as strong performers included India and Indonesia.
India is oft highlighted as a hotbed of opportunity for growth, with its high quality companies across a wide range of industries, among the positives associated with investment in the country. It’s not just the depth and breadth of business opportunities that makes India a good option for investment; over half of the population remains unbanked which provides scope for rapid GDP per capita growth and private consumption growth steadily across financial services, online retail, tourism and allied industries.

South Africa continues to prove a potentially profitable proposition, not least because of the ongoing financialisation taking place across the economy. It is the financial hub of the African region with South African financial services businesses typically expanding across the region to the smaller, still developing nations.

Brazil is also highlighted as an opportunity, although the potential of the increasing interest in and adoption of enterprise resource planning there should be balanced with caution over the political situation and economic backdrop. However, long-term strategies are the norm when it comes to EMs, ensuring that this is something that is regularly being considered and accounted for in any formal investment opportunities that are developed.

Diversification Is Always Essential In Any Investment Strategy

Overall, when it comes to EM investing strategies, diversification remains key - even within that segment.
Yes, including a broad-based EM fund or investment opportunity in your portfolio is something that should always be considered as a matter of course. However, even within the EM segment, thought should always be given to further diversification options. This can be gained via a market-to-market consideration, or on an industrial segmentation - or both.
We also note that all investment comes with some level of risk, even in the developed market, ensuring this should also be identified and factored into any EM investment decisions you make. However, as EM’s evolve and develop, so do the investment options within them and among the growing number of options is the hospitality industry. Tourism is a clear growth market across many EMs and is being shaped into a new, enticing and exciting experience for both travellers and investors. This makes now the right time to discover more about EMs and the investment opportunities they present.
This is a long road subject and I look forward to the journey with active enthusiasm.

Suggested readings: ‘The rise and fall of nations’ by Ruchir Sharma Suggested listening: ‘The times they are a-changing’ by Bob Dylan

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. There is no official definition of an Emerging Market. The countries which are commonly used in EM indices are Argentina, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Iran, South Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.

Written by Jay Krishnan, Eco Hotels