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Emerging Markets

iStock_emerging_market_2014_02_07The attraction of emerging markets is that they grow – sometimes very fast.
Mature economies occupy the other side of the spectrum and concomitantly mature economies simply do not have the demographics and economic characteristics to achieve high rates of growth.
To paraphrase Jim Slater who states in his book “THE ZULU PRINCIPLE” – “generally speaking elephants don’t gallop.”
There are many emerging markets investors can consider.
There are the oil producing countries like Kuwait and Saudi Arabia and to a lesser extent Russia. Kuwait and Saudi Arabia are very wealthy countries but they are difficult to invest in. China, the industrial power house, has a low income per capita, and is only now trying to transition from major exporter to a domestic consumption economic model. The fate of other emerging markets is largely dependent on whether or not China is successful in managing this transition.
Goldman Sachs is one of a handful of financial firms who now predict that the worst is over for emerging markets. After three years of sub-par performance Goldman Sachs is of the view that emerging markets are about to turn the corner.
“2016 could be the year emerging market assets put in a bottom and start to find their feet” Goldman strategists wrote in a note this week.
“There is the prospect of improved growth and better returns even if it is not a re-run of the roaring 2000’s”.
Some countries have better prospects although Columbia, South Africa, Turkey and Malaysia need to tackle their current account inbalances, Russia, India and Poland have improved their potential. Goldman also makes the point that after a massive devaluation, emerging market currencies are no longer expensive.
Franklin Templeton is another firm that is positive on emerging markets. They maintain that the sell-off has opened up buying opportunities not seen for decades.
Goldman predicts that developing countries’ economies will grow 4.9 percent next year, from an estimated 4.4 percent in 2015, marking the first acceleration since 2010.
Goldman Sachs said the biggest risk to this view is a significant depreciation of the Yuan.
South Africa and Chile are among countries more exposed to a further decline in metal prices as the Chinese economy slows, whilst stability in oil may help exporters such as Russia and Mexico, the report said.
Emerging markets are not for the faint hearted it remains a portfolio allocation decision and timing is critical.