Despite challenges, Emerging Markets (EM) investing will grow

Amid a synchronous and protracted slowdown, Emerging Markets (EM)’s growth started to decrease significantly from 2010 after a golden decade. Since then, EM’s growth forecast hovered around 4.2 percent in 2015-2016, down from as high as 7.5 percent in 2010.

External and domestic circumstances – especially the sharp decrease in energy commodities’ prices and ongoing political infighting in some large countries like Brazil, South Africa, Turkey – have undermined adequate policy response, decelerated potential growth, increased unemployment, eroded foreign exchange reserves and impacted exports negatively.

As a result after several years of EM frenzy in the news announcing the impending BRICS’s economic rise to global leadership that was eventually delayed for cyclical and structural reasons, investors have drawn more of their attention back on the G7 growth perspectives; however always keeping an eye on China whose global economic incidence has grown dramatically in recent years.

Although the G7 remains bigger than EM from an economic viewpoint, investors should focus a greater share of their attention on EM economies and especially on the seven largest ones – China, India, Brazil, Russia, Mexico, Indonesia and Turkey – whose a 1 percentage point increase in growth means a 0.6 percentage point increase in world growth at the end of three years, meaning spillovers from major EM will more and more permeate globally in the future.

This is particularly true about the BRICS’s ongoing efforts with a view to creating an alternative to and questioning the West’s dominance in global finance with the New Development Bank BRICS (NDB BRICS) and the more powerful China-led Asian Infrastructure Investment Bank (AIIB), both created in 2014.

Consequently, BNY Mellon wrote, there’s reason to be positive on EM in light of the more tempered reality on the “America first” potential threat on free trade. If most of the big investment firms avoid state-controlled sectors and choose to invest in consumers stocks, they opt for politically stable countries like China, India rather than Brazil, South Africa.

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