Increasingly, the major emerging markets China, Brazil, India, and Russia are becoming a heterogeneous group of countries. This is occurring along the dimensions of growth and inflation, political stability, democracy, financial liberalisation, and asset class performance.
The rise of China, and particularly the acceleration of its financial liberalisation, has created opportunities for foreign investors, who have always wanted to play the game but are only just being allowed to take part. The subtler rise of India, particularly given its democratic structure and ability to balance power in Asia, creates a different set of opportunities.
At the frontier and least developed (LDC) end of the emerging market spectrum, countries such as those in sub-Saharan Africa are poised to leapfrog technologies and development stages, undermining the traditional understanding of developmental economics.
While the LDC end of the economic spectrum is too distant an investable theme for many publicly invested global portfolios now, developments in these countries have knock on effects, such as counterbalancing advanced economy trends like aging populations, secular stagnation and the synchronisation of global markets.
Emerging markets should not be grouped in the same way they previously have, but this doesn’t mean that investors should get excited about idiosyncratic risks (see ‘equities outperform bonds’). The focus for most institutional investors for now should be on China, with India coming later.
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