The reason emerging markets (EM) seem so exciting for traders is their rapid rate of growth and volatility. And, this means more opportunities for trading.
These are countries with economies considered to be shifting from a “developing” to “developed” status. This change in status is measured through several factors, such as the level of market efficiency, liquidity of debt and equity markets and socio-economic factors.
The main reason for investing in emerging markets is that on average, their annual GDP growth is more than twice the GDP growth of advanced markets. Owing to their high rate of population growth and high per capita GDP growth, they grow much faster in an overall sense, as compared to the “rich” nations. Many emerging markets have greater dividend yields than a lot of companies in the United States.
Due to these reasons, emerging markets are becoming an ever-increasing part of the global market capitalisation, and immediate favourites for investors. Here’s a look at five of the most promising emerging markets for 2019.
With a GDP of around US$1,868,180 million for 2018, Brazil’s economy is the largest in South America and ranked as the eighth largest economy in the world, based on GDP, according to the International Monetary Fund (IMF).
The economy was running smoothly till 2010, when the nation faced challenges that raised concerns among investors regarding Brazil’s future. A large part of this concern was due to the instability of the government, which was marred by scandals and the arrest of former President Dilma Rousseff in 2016. But things have a changed significantly, with the new President Jair Bolsonaro at the helm since January 1, 2019.
President Bolsonaro’s economic policies of reducing taxes and cutting spending have had a positive impact on the financial markets. The effect can be seen from the fact that the Brazilian real gained 10% against the US dollar, ahead of the President’s inauguration.
The IMF has further restored the confidence of investors through its Economic Outlook report for 2019. The IMF expects 2.5% growth in the country’s GDP in 2019, which is more than the predicted 2.3% for 2018.
Popularly trading instruments in Brazil include the USD/BRL pair and commodities, such as wheat, coffee and sugar.
Mexico has very quickly built its reputation as an emerging trading market. The nation’s economy is the second largest in Latin America and is ranked as the 11th largest globally. The global recession did slow down its growth, but its GDP picked up steam in 2016, continuing to grow steadily since then. This has made Mexico a US$1.2 trillion economy, from the earlier US$1.07 trillion in 2016.
Since the country is heavily dependent on exports to America, the price of its currency, the peso, and the domestic stock market are closely linked to the US dollar. And, despite a decline in raw material prices across the world, the predictions for Mexico are still positive. The GDP is expected to continue to growth at an average rate of 2.5% in 2019.
The important markets in Mexico are the USD/MXN and EUR/MXN pairs and commodities such as iron, corn and wheat.
Although it is the second largest economy in the world, China has been considered an emerging economy for the past 25 years. This is because there is still huge scope for growth for the economy before it can be tagged as “developed.” For instance, Morgan Stanley Capital International (MSCI) has listed China as an emerging market economy. This is due to its low GDP per capita figure of $8,827 in November 2018, as compared to the US figure of $59,531.
China had a golden run during the 1990s and 2000s, but in the last decade, the economy has experienced a slowdown due to the rise of the state sector and increasing financial risks. 2017 saw an increase in China’s growth rate up to 6.9%, due to an increase in demand for Chinese products in the domestic as well as global markets. But, in 2018, the economy slowed down again due to high tariffs imposed by the US.
Trade tensions have negatively affected market sentiment on the Chinese yuan and the nation’s stocks, but the country’s growth rate is still expected to be an impressive 6.2% for 2019.
Currently, Russia is the 12th largest economy in the world with a GDP of US$1.7 billion. But, during the 1990s, things weren’t as good as they are now for the economy. GDP growth was negative for most of the decade, mainly due to the post-Soviet era sanctions. But after 1998, when the government defaulted on their debt, things took a turn for the better and there were signs of growth.
By the end of 2014, concerns were raised regarding Russia’s over-dependence on oil exports and international sanctions that were placed on the country due to its military intervention in Ukraine. But, after a lot of effort, financial stability was restored and, since then, the nation has been an active emerging market for investors. The IMF has also increased its expectations for GDP growth for 2019, from 1.7% to 1.8%.
When it comes to emerging economies, India ranks as the third largest, while being ranked the seventh largest economy in the world.
The major industries in India include agriculture, manufacturing, services and textiles. Agriculture forms around 15% of the nation’s GDP, while the services sector account for 61%. Apart from this, India is among the leading exporters of wheat, rice, cotton and sugarcane, and many countries depend on Indian exports to fulfil their needs.
By 2015, the Indian economy was growing at 7.2%, which was faster than any other emerging market. The nation is expected to continue growing at an average rate of 7.4% in 2019.
Economic reforms and an increase in foreign direct investment are expected to increase the rate of growth in the coming years for these emerging economies, making them an interesting investment option for many.