For many, the expression "Emerging Markets" is nothing more than a buzz word. A snazzy term used by people to sound informed. The reality is that for many years (while emerging markets have struggled) people have tried to find a more descriptive label, but few alternatives have gained popularity.
The good news is that “Emerging Markets” are actually emerging for the first time in a long time. They are emerging from a period of stagnant growth. They are emerging as real expansion and strategic growth opportunities.
Before we can expand on why these markets have a stronger outlook for global companies, we need to define and align. We must define what an emerging market is, and align on which ones are most important.
Define: For the most part, emerging markets are defined as markets that have established business sectors, like those of developed regions, but lack the robust supporting infrastructure that exists in highly developed countries. Think about China’s retail sector for a moment – incredibly busy, and flush with new brands, products, and services – but the supporting infrastructure of brick and mortar stores (and their complex logistics network) rarely exists outside tier two cities.
Align: Analyst opinions differ when asked to identify all of the world’s emerging markets, but the following markets are widely regarded by all top analysts to be the Big Emerging Markets (BEM’s): China, Brazil, India, Mexico, Philippines, Russia, South Africa, and Turkey.
If we look at these countries as a group, there are three consistent trends that clearly highlight the fact that emerging markets are on an upward trajectory.
Year over Year growth: In 2017, the economies of Brazil, Russia, Turkey, and South Africa have all showed annual GDP growth rates above the previous year. In fact, during the middle of 2017 the Wall Street Journal projected that some Emerging Markets could grow by as much as 4.7% in 2017.
Global Trade: Exports represent a larger share of emerging market output when compared to developed economies, making them more reliant on trade. And total world trade in goods accelerated to an average of 4.4%, in volume terms during 2017, an increase from 1.3% in 2016.
Weakening USD: The USD slid as much as 12% against major currencies like the Euro in 2017. And while a weakening USD may hurt the purchasing power of US-based companies, it means companies outside the US will have increased buying power. For example, the Russian Ruble ended 2016 at an exchange rate of 61 / 1 against the USD. The Ruble did not see a rate this high during all of 2017 and it sits at 57 / 1 against USD as of Jan. 3rd.
Of course, not all of the future for emerging markets is bright. There is still significant geopolitical uncertainty and instability that could wreak havoc on these growing, and subsequently fragile, markets. Russia’s continued military assertions in Eastern Europe, Korea’s saber-rattling throughout Asia, and the US administration’s protectionism theme could all manifest in economic earthquakes.
Whatever the beginning of 2018 brings, we’re hopeful that after these insights “Emerging Markets” are less confusing and more enticing to those in the business of global trade. It’s a big world out there and the opportunities are endless.