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Which emerging markets hold the most promise for investors?

By: Richard Webster
Investors need to seriously consider the world’s new emerging economies in order to achieve sustained growth in their portfolios in the long-term, according to the boss of the world’s largest independent financial advisory group.

Nigel Green, chief executive of the deVere Group, says that the so-called Next Eleven (N 11) countries – namely Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam – could have the impact that the BRICs (Brazil Russia, Indian and China) have had over the last 10 years.

He explains: “The BRIC nations have been at the forefront of global growth in the past decade.  Indeed, these four countries currently account for more than 18 per cent of the world’s GDP, which is far greater than had been predicted 10   years ago and of course, this enormous growth has been highly lucrative for those who have wisely invested in these nations.

“But whilst forecasts demonstrate that the BRICs’ growth will continue for sometime – their aggregate share of global GDP in dollar terms will soar from 18 to 26 per cent by 2020 – there are signs that their dominance is starting to slow, due to their exposure to beleaguered western economies.”

Mr Green highlights China’s slow down in manufacturing to illustrate his point. “Due to the ongoing eurozone crisis, European demand for Chinese goods has slumped dramatically.   In fact, Chinese manufacturing output grew in September at its slowest rate in eight months.”

With the ‘Big Four’ showing indications of faltering, investment alternatives are now being sought. “The BRICs narrative is far from over.  But savvy investors looking for strong, solid growth should now be looking elsewhere too.”

For the chief executive of the deVere Group, at the top of the alternatives list are the N-11 countries, which have been identified by the man who first coined the ‘BRIC’ acronym, Jim O’Neill, the chairman of Goldman Sachs Asset Management, as having a high potential of becoming amongst the largest economies in the 21st century.

“The N-11 nations are being tipped as the front runners of the new global economy due their current growth trends.  But other factors also come into play.

“Many of these countries have huge, young, and increasingly educated and wealthy populations, meaning their consumption potential is enormous and growing all the time.

“In addition, these countries are comparatively stabile politically and socially, plus they have relatively robust legal, financial and regulatory systems in place.

“Indeed, they display all the key characteristics the BRICs did a decade ago; characteristics which empowered the bloc’s phenomenal rise into a global economic superpower.

“And those who now invest sensibly in the N-11 countries could benefit as those who previously invested in the BRICs did.”

Taking a closer look at some of the N-11 nations, Mr Green highlights some of the specifics that make them an attractive interest to investors.

He says: “Turkey is widely expected to be the world’s second fastest growing economy by 2018 and it spent much of the last decade positioning itself for inclusion into the European Union, which suggests a high degree of political and social stability – which is increasingly important for investors whose appetite for risk has dwindled since the start of the global economic downturn.   In addition, due to its strong trade links with many developed countries it has comparatively sophisticated business practices.”

“Nigeria is another extremely exciting country which holds masses of potential.  The country has four times the population of South Africa, or in other terms, about 20 per cent of the entire population of Africa, and if it resolves its electricity issues which hamper its production, it could experience double digit growth within a decade.  The oil, agriculture, construction and retail sectors look to be the most promising in Nigeria.  It is already the third biggest supplier of oil to the US.

Mr Green continues: “Indonesia’s biggest asset is it massive, flexible labour market.  There is a population of 246 million, making it the forth most populous country in the world, and again there’s an ambitious, hard-working workforce who receive amongst the lowest wages in the region.  These factors, and the fact there’s an established production infrastructure, create an ideal environment to manufacture goods for the export market and a good place to source products for importers.

The deVere Group’s chief executive tells Global Banking and Finance Review that whilst every emerging market has its risks, the potential is too significant to ignore.  

“The sluggish situation of many established economies is well-documented and it is no surprise that investors are increasingly, and rightly, looking to broaden their horizons as they seek to bolster return on investments and diversify their portfolios.

“The N-11 countries have shown to investors that they have achieved important growth levels and have proven themselves to be self-sufficient, meaning they’ve been somewhat protected from the worst of the economic crash’s knock-on effects.

He concludes: “Whilst the BRICs will remain growth stalwarts, the opportunities now coming to light in the N-11 bloc should ignite investors’ interest.”