Emerging Markets Risk or Opportunity?
To briefly summarize and put into context, we refer to emerging market countries as those whose economies are on the path to large-scale development; and in an expectant position to become a developed country. The economy of an emerging market has different characteristics. Among which we can mention a significant increase in liquidity in the local debt and equity markets. As well as the existence of some free trade agreements and the existence of regulatory agencies.
The attraction for investors lies mainly in the expectation of high yields, as these markets could experience higher growth figures and at a faster rate than other developed economies. Risks on the other hand could be higher; mainly considering factors such as political instability, new regulations, high levels of local currency volatility. As well as infrastructure problems at the national level and liquidity problems in the securities markets.
According to the International Monetary Fund (IMF), the countries classified as emerging are 23. However, some large banks or rating agencies have a different number of countries that make up their list of countries that meet these characteristics. The countries that are common in all these lists may be; China, Brazil, Russia, Chile, Colombia, Hungary, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey.
Read more about emerging markets
After the damage caused by the pandemic and in view of the high expectations of economic growth worldwide, one of the favorite sectors to invest in globally were emerging markets. The sensitivity of this segment is due to higher growth and high commodity prices. Stable interest rates and the weakening of the dollar strategically positioned this segment for good returns.
However, after a very good second half of the year 2020; the specters of a considerable increase in inflation, a weakening of economic growth and an increase in interest rates began. All of this happened ahead of schedule on the part of the U.S. Federal Reserve. All these factors increased market volatility levels. The global emerging market sector, being more sensitive to these effects, suffered as a result.
Difference between 2020 and 2021
Below, we look at the difference between the second half of 2020 and the first half of 2021; of the main countries in this sector. With the sole exception of Thailand, performance has been greatly diminished in the last six months.
