emerging markets

By John Calverley, Standard Chartered

Concern over rising inequality has increased in recent years. While inequality has fallen between countries, as rapid economic growth has helped emerging economies catch up with the developed world, there seems little doubt that inequality within countries has risen for most.

Technology is just one factor at play – along with globalisation, taxation and reduced union power – but its effect on economies is a key to understanding how income gaps evolve over time. Continue reading »

Move over multinationals – the locals are coming.

Sound unlikely? Actually not, according to a new study by the Boston Consulting Group. It has identified 50 emerging market companies giving the big boys a run for their money in their own backyards.

These “local dynamos” – like Indian e-commerce company Flipkart, Chinese mobile-phone company Xiaomi, Bank Rakyat of Indonesia, Discovery Health of South Africa or Banorte of Mexico – may not be international names, but they have successfully carved out innovative domestic niches for themselves. Continue reading »

Increasing numbers among an estimated 2.5bn “unbanked” people in poorer countries are turning to their mobile phones to pay bills, transfer money and receive salaries. And now – a survey has found – the practice is spreading fast beyond its traditional heartland in sub-Saharan Africa to other parts of the emerging world such as Latin America.

The survey conducted by the GSMA, an industry group that claims membership from some 800 mobile operators in 250 countries, found that operators were offering 219 live services in 84 countries at the end of 2013, up from 179 live services in 75 countries a year earlier. A further 113 mobile money services are planned for launch, the GSMA said.

Mobile money services were rolled out in 2013 in nine new markets – Bolivia, Brazil, Egypt, Ethiopia, Guyana, Jamaica, Tajikistan and Togo, the GSMA added, quoting survey results. The survey polled 110 service providers in 56 countries. Continue reading »

Although the violence in Iraq has so far had a muted impact on global oil markets, if prices continue to rise there could be some nasty consequences in store for the more fragile of emerging market economies (see chart below).

And while a spike would hurt countries that rely on energy imports, it won’t necessarily translate into quick and easy economic gains for EM hydrocarbon exporters, say analysts. Continue reading »

How do you bank the “unbankable”? The question could hardly be of more importance to small businesses in emerging markets, an estimated 200m of which are starved of the finance they need to grow.

One somewhat unlikely – but increasingly popular – answer is through psychometric tests. By yielding profiles of loan applicants’ honesty, intelligence, aptitude and beliefs, the tests facilitate lending to otherwise “unbankable” borrowers who do not possess a credit history, collateral or accounts.

Artful questions are key to the tests’ efficacy, say finance executives and industry experts. For example, if you want to assess a prospective borrowers’ honesty, it would be naïve to simply ask if they are honest, or if they prize integrity. Continue reading »

Geopolitical risks rank as the top worry among global investors, eclipsing economic concerns such as a weakening Chinese economy and slowing emerging market (EM) growth, according to a survey of 941 investors announced by Barclays on Tuesday.

The survey, conducted in the second quarter of this year, contrasted with surveys in the first quarter of this year and fourth quarter of 2013, which showed China/EM growth and the tapering of monetary stimulus by the US Fed as top worries for the following 12 months (see chart).

The survey also found that EM investors favoured equities, local currency debt and high yielding benchmark bonds as investment choices. Continue reading »

Accelerating urbanisation – especially in India and China – is set to boost emerging Asia’s share of global spending on infrastructure and capital projects over the next decade, slashing the developed world’s market share by 2025, according to a PwC report released on Monday.

The report, for which Oxford Economics researched trends in 49 countries on six continents, estimates that the world’s urban population is currently swelling by around 1.5m people a week, mostly because of rural-urban migration in the emerging world. In India, for example, the urban population is likely to rise by some 500m over the next four decades. The Pakistan city of Karachi grew by 80 per cent to 13m in the decade to 2010. Continue reading »

Several big risks – including China’s cooling property market, instability in Ukraine and the prospect of tighter global financial conditions over time – still stalk emerging markets (EM) in spite of a reduction in overall risk levels compared to last year, the World Bank said in a report on Tuesday.

In the 154-page report, Global Economic Prospects, the World Bank trims its global GDP forecast for this year to 2.8 per cent year-on-year, down from 3.2 per cent previously. But, it adds; “Despite the early weakness, growth is expected to pick up speed as the year progresses and world GDP is projected to expand by 3.4 per cent in 2015 and 3.5 percent in 2016.” Continue reading »

Stronger readings in China helped drive a marginal uptick in emerging market (EM) manufacturing activity in May, breaking a declining trend that has lasted for five consecutive months, according to purchasing manager index (PMI) data aggregated by Capital Economics.

The Capital Economics data, which showed an EM manufacturing PMI for May of 50.1 compared to 49.6 in April, coincided with a slight upswing in investment bank sentiment toward the Chinese economy. Nomura raised its China GDP forecast for the year, while Barclays saw a further easing in Beijing’s monetary policy. Continue reading »

By Paul McNamara of GAM

A rise in overall emerging market (EM) debt levels and an increase in US Treasury yields is causing many investors to look for a new crisis. The argument goes that developed market (DM) central banks cut rates to zero in response to the financial crisis, and capital flowed out of these economies in search for yield.

Corporate bonds issuance in EM increased, and because EM banks were in far better shape than their developed market counterparts, credit growth soared. A common concern among EM investors is the risk that when the US Federal Reserve tightens rates, capital inflows from DM to EM could reverse, causing GDP growth to collapse.

We believe that the risk of a collapse in EM growth prompted by capital outflows is much lower than is feared. EM fundamentals have adjusted substantially already: credit growth has slowed by 9 percentage points since its peak in mid-2011. Continue reading »

By Tomás Guerrero, ESADE Business School

In the last months, some isolated events such as the suspension of the Nigerian Central Bank governor, Lamido Sanusi, and the outbreak of the Ukrainian conflict, have set the alarm bells ringing. Frontier markets could be a bubble about to explode.

Though, the reality in this diverse set of countries is far away from the forecasts of the doomsayers. In the case of Ukraine, whose weight in the MSCI FM – the frontier market index – is negligible (0.1%), the stress prompted by the Russian occupation has not shaken investor confidence. The PFTS Index, the benchmark index of the Ukrainian stock exchange, has gained a 36.3 per cent since the beginning of the year and a 39.1 per cent since May 2013. Continue reading »

To see how China is managing its growing clout over trade and investment around the world, it might help to take a look at how an economic hegemon evolved in the past – Britain’s colonists in eighteenth and nineteenth-century India.

In reality, China is still in the East India Company stage of global economic strategy – opportunistic and pragmatic rather than ideological and intellectually coherent. (It is something of an irony that the one-party autocracy of China is proving itself eclectic while the open-market democracy of the US has been doctrinaire.) And while there are some signs that China’s economic statecraft is moving towards the transparent and plurilateral, most of its policies towards other emerging markets are opaque and self-interested. Continue reading »

April was a pretty subdued month for emerging market manufacturers. But it seems to have been worse for the BRIC countries – especially China, Russia and Brazil (but not for India) – than for smaller EM economies in general. Some countries that thrive on Eurozone demand posted a fairly buoyant performance.

Overall, EM manufacturing’s PMI (purchasing managers index) fell to 49.6 in April, its lowest reading since June last year and the second straight month it has been below 50, which in theory separates contraction from expansion. Continue reading »

The “fragile five” – Brazil, India, Indonesia, Turkey and South Africa – have had a torrid time since Morgan Stanley identified them last year as countries particularly vulnerable to the “tapering” of US monetary stimulus because of their large and rising current account deficits. Continue reading »

We at the FT have this week been running a series on the “Fragile Middle”, defined as some 2.8bn middle class people in emerging economies who are vulnerable to ebbing fortunes. The issue has been provoking fresh debate on just what it means to be “middle class” in the world today.

Here is a run down on some of our thinking. Let us know what you think in the comments field below.

 Continue reading »