2023-05-08 11:00:37
What we will see in this article:
Emerging markets have been catching the attention of investors lately. These are places with a growing population, more natural resources, an expanding economy and potential consumer power. Not to mention the possibility of evolution. Sounds like a good option to diversify your portfolio, doesn’t it?
Below, find out more details regarding the main emerging markets and all their economic potential. Let’s go?
Emerging markets are developing economies that are growing rapidly and thus integrating into the global economy. Even though many characteristics can be cited, see the main ones to identify one:
- Abundant and/or varied natural resources
- Openness to foreign investments and companies
- Growing population, rapid expansion of GDP and GDP per capita
- Publicly traded companies in a good position to compete internationally
- average human development
- Accelerated economic growth in various sectors such as technology, energy, healthcare, infrastructure, commodities
- Products and services demanded internationally
- Access to relatively cheap labor
- Large expanding consumer market and growing demand for consumer durables and financial services
In the following chart, also see the position of several countries according to GDP in 2022:
Importance of emerging markets
There is significant importance in the world economy, as emerging markets account for at least half of the world’s GDP. It is estimated that by 2030, the largest economies in the world will be in emerging countries. So much so that they are a crucial source of demand and supply of goods and services, as well as a source of investment.
Another very interesting point is that emerging markets can boost job creation and, as a consequence, reduce poverty in many regions of the world. And when we talk regarding it, we cannot fail to mention the BRICS, which are the group of 5 expanding countries: Brazil, Russia, India, China and South Africa, which account for regarding 42% of the population and 26% of the global GDP .
These countries play an important role in the world economy, as a counterweight to countries that are already developed. The BRICS group also collaborates in several initiatives, such as the creation of the New Development Bank.
What are the main emerging markets?
Get to know the main countries and some of their characteristics.
1. China
China is the 2nd largest economy in the world and concentrates a large part of the world’s population. (More than 17% of people on the planet are in China). Between 2013 and 2021, it was a country that contributed with more than 30% of world growth, and its GDP has grown at an average rate of 6.6% per year. According to JPMorgan, China is expected to overtake the US as the world’s largest economy in 2027.
2. Brazil
Our country is the largest economy in Latin America and presents itself as a diversified economy. This is not counting the natural resources and abundant commodities, which are desired by the main international buyers. Brazil calls the attention of investments due to its expansion opportunities, it is a factor that can boost other economic segments.
3. India
India takes the top 3 and has been implementing economic reforms across the country. With a large population, it is a country that has one of the main consumer markets in the world. In addition, they stand out for their rapid growth in sectors such as technology services and IT services, and their expansion is such that India’s economy is almost twice the size of Brazil’s.
4. South Africa
It is a country that is part of the BRICS and still has the largest economy in Africa. It is an emerging market with abundant mineral resources and a growing services sector. Even with all the challenges and serious problems of social inequality, South Africa is seen as an important regional and also global power, as it has good potential to lead areas such as sustainable development, trade, innovation.
5. Russia
Russia, on the other hand, is a country with a diversified economy and with great weight in science, technology and arts. It has a prominent role as a producer of natural resources such as oil and gas, in addition to being the center of innovation in areas such as aerospace and nuclear energy. However, it is not possible to deny the enormous disadvantage due to the sanctions that the country suffered due to the invasion of Ukraine last year.
6. Mexico
Mexico has the 2nd largest economy in Latin America, with its GDP reaching US$ 1.32 trillion in 2022, while its contribution to world GDP is 1.273%. It is an important country as a producer of oil, food, minerals, financial services and manufactured goods. In addition, it also has a good tourist industry.
7. Indonesia
A great point regarding Indonesia is that it is one of the main consumer and investment attraction markets located in Southeast Asia. In 2022, the country’s economy closed with a significant growth of 7% in the year. Its biggest highlight is in commodities as a producer of oil, natural gas and agricultural products, and it also has a developing manufacturing sector.
8. singapore
Singapore has more than quadrupled its GDP since the early 2000s. This rapid growth bodes well and attracts the attention of international investors. It is a country with great importance in the financial and business center in the region, being a booming technology industry.
9. Malaysia
Malaysia, on the other hand, is a country whose economy is close to being 4 times larger than it was 20 years ago. It plays an important role in commodities such as palm oil and rubber. An interesting point is that the GDP for the whole year of 2022 was 8.7% higher than in 2021, being the fastest annual growth in 22 years and still beating the government forecast of 6.5% to 7%.
10. Türkiye
In tenth place comes Turkey, which also has its strategic position between Europe and Asia. Its economy is diverse and rapidly growing, driven by sectors such as the automotive industry, construction and tourism. Last year, the country grew a solid 5.6%, even with inflation out of control.
Advantages and disadvantages of investing in emerging countries
Emerging markets have their upsides and downsides, just like everything else in life. Therefore, before investing, it is good to know all the factors. For example, one of the advantages is that they offer portfolio diversification, that is, it allows you to reduce risk exposure.
In addition, other benefits are:
- geographic diversification: the distribution of wealth beyond the US and Europe
- Rapid growth: are countries that have a high potential for accelerated economic expansion
- Sector diversification: the possibility of applying resources in non-existent or weak sectors in developed countries
- consumer market: companies operating in emerging markets end up benefiting from consumer power.
It is a type of investment that encompasses challenges. So the disadvantages are:
- Infrastructure and logistics issues
- Currency volatility and inflation
- Legal and tax uncertainty
- Political and economic instability
- Risks with bureaucracy and corruption
- Corporate governance and regulatory risks
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