Growth dynamics in the "newly" emerging economies
The traditional emerging market countries have undergone amazing economic development during the last decade, and contribute more to economic growth today than established developed countries. As economic convergence progresses, however, their growth dynamics have begun to moderate. A second wave of "younger" newly industrializing countries is starting to benefit from the achievements of their more mature counterparts. As a result of economic and political reforms, vast raw material reserves, renewal and expansion of basic infrastructure, regional status as centers of trade, and increased integration in global economic cycles, "New Markets" such as North and Sub-Saharan Africa, Central Asia and the Caucasus are showing impressive above-average growth rates. What's more, countries in those regions have the world's youngest population with positive growth rates - demographic sweet spots with attractive growth prospects.
Return and diversification potential
New investment fields are opening up for risk-conscious investors, and they basically cover two conventional investment needs: firstly – particularly in the early stages – young, largely unexplored investment markets promise highly attractive potential risk-adjusted returns on investment over 5 to 7 years. Equity returns in emerging market countries naturally exhibit higher volatility than investment in shares in the established industrialized countries. However, the comparison of rolling five-year returns shows that emerging markets performed better virtually throughout, both in bull and bear markets, as shown below.
Source: Bellevue Asset Management
Additionally, second-wave of newly industrializing countries correlate much less closely with stock markets in the industrialized countries because their stock markets are not yet represented in the common stock market indices and share price trends are largely determined by local fundamentals.
Source: Bellevue Asset Management
The above illustration shows how the correlation between traditional newly industrializing countries and the MSCI World Index has evolved over the years, the North and Sub-Saharan African stock markets still exhibit very low correlation with traditional stock markets and hence display excellent diversification potential.
Local expertise adds value
Direct stock market access to the "New Markets" presents a major challenge for private investors. Opening a securities deposit account, strict regulatory requirements, foreign exchange trading limits and impenetrable fee structures call for a professional approach in order to acquire efficient market access at a fair price. Liquidity in these markets is also subject to fluctuations and depends on fundamental, technical and – in some cases – political factors that mandate very close relationships with market stakeholders in the respective region. To compound matters, most of these countries do not yet have efficient and diversified stock market indices which virtually precludes investments via passive investment products.
Yet, low market efficiency, a lack of research coverage and information gaps are factors which clearly favor an active investment approach in an emerging region. Our specialists stem from the regions they invest in. They are familiar with economical, political, cultural and social customs and maintain close relations to entrepreneurs, consultants, brokers and local authorities. This enables our emerging market specialists to take profoundly educated and profitable investment decisions within our new market portfolios.