The Attractions of Emerging Markets

Emerging markets continue to develop in size and importance, and their contribution to the global economy is increasingly significant.  At present, China is the second-largest economy in the world, superseded only by the US. However, by 2050, China is forecast to take the top spot, pushing the US to third place after India. Brazil is also likely to rise up the top ten, joined by Indonesia, Russia and Mexico. Meanwhile, Germany and the UK are predicted to drop to ninth and tenth position respectively, and France is tipped to fall out of the top-ten largest economies altogether.

The economies of many developing nations are evolving to become less reliant on manufacturing, focusing instead on technology and services. Investment in infrastructure continues to rise and the cost of labour is still relatively cheap compared with more advanced economies. Elsewhere, the influence of an increasingly educated and urbanised middle class bodes well for domestic consumption. Moreover, companies are becoming more aware of the need to deliver shareholder value; corporate governance has continued to improve and companies are becoming more transparent.

There are still risks associated with investment in emerging markets, from the political to the environmental; furthermore, they remain vulnerable to the knock-on effects of economic slowdown in advanced economies. Nevertheless, looking ahead, emerging markets are not only well placed to support and enhance global growth, but also to offer attractive long-term investment returns as part of a diversified portfolio.