TGIF – Emerging Markets on the Run

Emerging Markets have been running hot this year. But you don’t really hear much about it. Investors are finally taking notice. A decade and a half ago, Emerging Markets were all the rage. It was the BRIC nations that represented the greatest growth opportunity around the globe for investors. BRIC stands for Brazil Russia India and China. The BRIC nations got hit hard during the Financial Crisis, and have only recently recovered. Emerging Markets are up over 20% this year, but are well below their all-time, pre-crisis highs. In fact, they still remain below their 2014 levels. China is now the 2nd largest economy in the world, but is still considered an Emerging Market. Of the 4 BRIC’s, India stands out.

India is now the 7th largest economy in the world. Growing over 6% annually, India’s economy is accelerating again and is on track to become #3 by the end of the decade. Prime Minister Narendra Modi has been implementing economic reforms required to bridge the gap between the potential and the reality. Modi announced a plan to spend $59 Billion on India’s infrastructure, focusing on roads, rail and airports. Also included in the plan is a massive Tech buildout of servers, networks and storage. India is investing in themselves and their bright future. Apple has made a big push recently to capture the Indian market, the second largest market for phones. The lack of internal infrastructure in India has led to many internet-based business models, and they’re taking off. India is where China was 10 years ago, in terms of consumer spending. But the opportunity for growth is enormous.

Emerging Markets account for 85% of the world’s population, but only half of global GDP and less than 10% of global market cap, i.e. Total Global Stock Market value. Importantly, Emerging Markets will be responsible for over 70% of the economic growth in the coming years. India and China are the fastest growers. They also have the largest populations by a long shot, with over 1 Billion people each. Most Emerging Market nations have very young populations. Half of the world’s population is under the age of 30. 9 out of 10 live in an Emerging Market.

Besides the young populations, Emerging Market nations share another common theme: Commodities. Emerging Market nations in Africa, South America, South East Asia and the Middle East are rich in raw materials. When the global economy picks up momentum, demand for raw materials like industrial metals, agriculture and energy go with it. Global infrastructure and development is about building new stuff, modern stuff. That requires tons of raw materials. These are longterm themes that look sustainable.

The DOW and S&P hit fresh all-time highs again this week. The gains continue to come in the face of so much skepticism. Earnings Season has just begun, which will provide the necessary facts to confirm the health of this rally. The global economy is expected to grow 3.5% this year, while the US is slated for 2% growth. Emerging Markets are expected to grow 4.5%, leading the way and their stock markets have been playing catch-up, but remain well below their all-time highs. For those concerned that the DOW is too high, rest assured, there are plenty of investment opportunities out there. We could see a needed breather ahead, but see tremendous opportunity beyond.

Have a nice weekend. We’ll be back, dark and early on Monday.


P.S. Check out the huge difference between the charts since the Financial Crisis below!

S&P 500 market graph

History of emerging markets with the S&P 500

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