All is Not Lost: A Look at Prosperous Emerging Markets of Tomorrow

All is Not Lost: A Look at Prosperous Emerging Markets of Tomorrow

Though it’s easy to fall to despair due to the rise of nationalism and populism, progress in many emerging economies remains strong. In spite of it all, emerging markets retain considerable cause for hope, thanks to favorable demographics and increased investment, among others.

Let’s take a look at three of the emerging economies which are on track to prosper in 2017.

Growth in the Philippines

One unlikely emerging market that has stayed strong, even through political and economic turmoil, is the Philippines. Despite the election of Rodrigo Duterte, a populist leader who has launched a violent, yet intensely popular vigilante war on drugs and threatened to sever existing relationships with the United States, the Philippines has thrived. In Q3 2016, the nation posted the highest growth rate in Asia, a staggering 7.1% that very narrowly beat out regional rivals like Vietnam.

While it may seem that uncertainty can also be good for the economy, the truth is far more complex. Despite his image as a macho man of the people, Duterte has actually promoted a number of economic initiatives within the Philippines, particularly when it comes to infrastructure. For instance, Duterte opened up the telecommunications and energy sectors to outside companies, offering new players and technologies (like solar power) a chance to enter the playing field. Certainly investors have not been daunted by Duterte’s consistently unpredictable rhetoric, as investment has increased by 27.6% in Q2 2016.

Beyond Duterte, however, there are also signs that the Philippines’ economic renaissance are reaching larger parts of the population: household consumption rose by 7.3%, spurred by an uptick in spending, as well as positive public perceptions of increased safety resulting from the nation’s war on drugs.

Thanks to improved infrastructure, increasing spending, and a rise in investment, the Philippines’ future seems very bright indeed.

Vietnam: Bumpy Roads, Bright Forecast

Despite some bumps in the road, Vietnam is still on the rise.

To begin, the Vietnamese economy has posted a phenomenal growth rate of 6%, along with a GDP increase of 6.4% in Q3 2016 alone. Surges in foreign direct investment, exports, and a recovery from a drought have all accounted for this, though the key standout is manufacturing, which grew 11% from January through September 2016.

Thanks to a young population and cheaper wages vis-a-vis other emerging economies, Vietnam has slowly gained a reputation as the new manufacturing superpower. Compared to other ASEAN nations, whose elderly populations (above age 65) hover at 10%, Vietnam’s is at 6%, providing a large pool of labor for multinationals. In 2014, Vietnam became the largest Southeast Asian exporter to the United States, which led it to be an enthusiastic early supporter of the Trans-Pacific Partnership (TPP).

However, with stiff opposition from President-elect Trump, the TPP does not look likely to pass. This will be a blow to Vietnam, for sure; its industries, especially textile factories, were seeking to capitalize on TPP, specifically its free trade protocols and looser import provisions.

Yet even in light of the TPP’s pending cancellation, Vietnam’s economy is still a strong performer. For one, foreign direct investment (FDI) from other Asian nations, particularly South Korea, remains significant: in total, such companies have undertaken 5,593 projects worth a total of $50 billion, and invested in close to 30% of Vietnamese export firms. A particular area of growth is agriculture in Vietnam’s fertile Mekong Delta region, which accounts for 13% of the entire nation’s FDI.

In fact, there’s every reason to believe that Vietnam’s strong performance to date will continue. Its natural resources are also quite plentiful, especially its crude oil reserves and fisheries, both of which have also seen increases in processing and export.

Russia: Coming in from the Cold

As late as October 2016, Russia’s economy was in trouble, a result of low oil prices, Western sanctions, and a slump in real wages and retail. Certainly this was not news to most, as the Russian economy had been in recession for over 18 painful months prior, a victim of geopolitics, a weak ruble, and stagnant growth, forcing even Vladimir Putin to cut his own salary by 10%.

But with the election of Donald Trump, long known to be friendly to Russia, relations may finally be turning a new page. While Trump’s pro-Russia, anti-NATO stance has caused alarm in America’s European allies, the news could not be better for Russia. Generally, the consensus among analysts is that a Trump presidency will bring Russia in from the cold.

Investors are taking note, as well. A large number of Western multinationals, from Sweden’s Ikea to pharmaceutical giant Pfizer, have been doubling down with key Russian investments, building a $1.6 billion chain of stores and a new drug factory, respectively.

One reason for this bullish outlook is, at first glance, a terrible thing: the ruble’s sharp decline. While a disaster for the local population, the fall of the ruble has significantly lowered production costs, rendering the country an attractive destination for manufacturing. Even if Russia cannot yet compete outright with Asian powerhouses like China or Vietnam, it is on track to become Europe’s manufacturing destination, particularly as wages are increasing across Central Europe.

Another engine of economic opportunity is less well-known: the Russian agriculture sector, which has continued to improve even through the economic and political turmoil of the post Soviet years. This year’s grain harvest, projected to be 137 million tons, is the largest such crop since the fall of the Soviet Union two decades earlier.

Thanks to a combination of good land management and a lucky weather streak, Russia’s farmlands have proven fertile and productive. But issues do remain: Russian wheat is a lower quality product overall, and has received less investment and modernization than higher-value crops like sugar, meat, tomatoes, and apples. Further, there is evidence that progress in certain sectors, such as a decrease in imported pork (-50%), paired with an increase in production (+9%), may have simply been due to an overall slump in pork consumption among Russians.

All the same, figures from international investors to IMF head Christine Lagarde have expressed optimism that Russia will come back stronger from its previous crises. And thanks to a new, Russia-friendly administration in the White House, as well as the nation’s own, hard-won progress, it may be time to reconsider Russia’s reputation as the forgotten child of the BRICS pac.

Ultimately, emerging markets, despite some initial panic on the dawn of Trump’s election, are far more resilient than investors may realize. The key is to scour economic, political, and social data to find precisely which new economies will remain dynamic, viable, and most of all, profitable.

2017-06-19T14:52:47+00:00 December 2nd, 2016|Blog|0 Comments

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