Emerging Market Mysteries Revealed

The global economy is uncertain, and the potential for lesser-known emerging markets is creeping into the minds of finance gurus. Investors typically point toward China, Brazil and Russia, and other like countries, but Turkey, Mexico and the Czech Republic are examples of countries that can stimulate the economy.

There are commodity-based countries, too, like Canada and Australia that could equal the potential of currencies in lesser-known countries. If the European Central Bank and the government generate more tax incentives and other forms of easing, it would create an upside pressure on inflation, boosting the value of currencies in the lesser-known countries and support commodities.

Countries such as Turkey and Hungary are in the midst of very high inflations. Turkey is currently in the double-digits for inflation. This will eventually create carry trades, which is an opportunity for traders to earn interest, and capital gains. Forex trading is done in pairs, meaning there are two different currencies and two different interest rates.

In addition, because countries like Turkey and Hungary have taken a hit on the value of currency, rebalancing may take place and that’s when emerging markets will become more viable.

Beyond the Risks: Emerging Markets

Emerging markets pose risk, however, investors need to search deeper. The risk factors in several emerging markets are slow growth with rising inflation, and political unrest. But investors are encouraged to keep looking. South Korea, South Africa, Poland, Egypt, and Turkey and Mexico are not in the Big Four category, but they are promoting growth.

Their stocks have potential for high, unforeseen values. It’s wise for investors to look beyond Big Four, including Brazil’s shaky political state, China’s tight-lipped companies and Russia’s unwelcome dabbling in business matters. Dollar-priced stocks won’t be the way to go. Instead, it will be emerging market mutual funds or exchange traded funds because these focus on specific countries or regions.

The Promise for Potential

Mexico, for example, is reveling in its fiscal responsibility upgrade through record foreign currency reserves and investment-grade debt rating. Mexico adds the frosting with listing companies on the New York Stock Exchange like Walmart. South Africa’s government opts for limited spending, therefore saving, and is exploring retailers and banks to invest as possible places for its money.

The DuPont Capital Management firm has invested $600 million in emerging market equity. South Africa is still mining, but it’s breaking into domestic-oriented investments. Egypt has been among the top performers in U.S. dollars because of economic reform and higher oil prices. Turkey is spearheading economic reform and its banks are experiencing a high loan volume.

What the Decade Holds for Investors

Developed nations don’t stand a chance against emerging markets. The decade will belong to emerging markets, said one market investment giant.

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