The End of the Emerging Market Growth Story


An emerging market is a nation that has certain attributes of a developed economy, but does not meet standards to be a developed economy. It also includes nations that could become developed economies in the future or were considered a developed economy in the past.

2016 was referred to as the year emerging markets (EM) would make a revival. However, some experts believe the years of outstanding growth in emerging markets are over.

EMs have faced tough conditions ever since the U.S. Federal Reserve began rolling back its huge bond-buying program in 2013.

Some economies have struggled with weak currencies and high current account deficits. They are also referred to as the “Fragile Five.” These nations include India, Indonesia, Brazil, Russia, and Turkey.

Following this, the fall in commodity prices and the uncertainties of a slowdown in the Chinese economy put further pressure on these economies. However, things improved for nations such as India and Indonesia, who initiated political and economic reforms.

According to Levy Raiz a Partner at venture capital fund Flint Capital, “The emerging markets growth story was a phase, but nevertheless investors who have a strong presence in emerging markets will continue to facilitate a process of expansion that will result in strong returns.”

Since 2011, emerging market equities have witnessed a downturn. They have been characterized by bear market rallies because valuations and market sentiment have hit extreme levels.

Countries such as Thailand, Malaysia, Turkey and Brazil, which have weak fundamentals could come under renewed pressure with regard to economic development. Emerging market expectations must gain momentum for EM equities to perform well.

Speculation remains as to whether the Federal Reserve in the US would increase interest rates in June. This would most probably impact the US dollar and global assets, including in EM.

Again, increasing interest in some of the developed economies such as the US could see investors making their way into these major economies.

According to a report released by Eco bank (a Pan-African bank) in May, African currencies have declined on an average in comparison to 2015 because of the strong US dollar.

Meanwhile, oil prices have rallied somewhat, with WTI and Brent crude hovering around $50 per barrel. Nations that are commodity importers such as India could face a downside risk.

However, EMs represent around 70 percent of the global population and their populations are increasing – so gross domestic product (GDP) growth is expected.

Certain investors made investments in EMs without sufficient research and lost money, but investors who comprehend regional cultures would secure excellent returns in the long-term.

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