SEATTLE — After a downturn in 2015, an overall bad year for emerging markets, the United States has begun to see its largest corporations migrate their funds to emerging markets once again. One Fortune 500 company, PIMCO, has more than doubled its investment in global markets. Chief investment officer Mark Kiesel told Bloomberg that PIMCO was investing into positions in Russia, Mexico, and Brazil.
Two-thirds of the largest global bond funds reallocated money into the developing world in 2016. Compared to the 2015 fiscal year, the United States market increased its emerging market investments from 2.4 percent to 15 percent, a massive increase in such a short time. The movements put countries in the developing world, where poverty can often be rampant, at the forefront of domestic monetary inflow. Experts in finance are referring to this as a ‘great migration’ of emerging markets.
A 2001 paper by Goldman Sachs head of research Jim O’Neill unveiled Brazil, Russia, India and China as countries waiting for the courageous investor. In very little time after the publication of “Global Economics Paper No. 66 Building Better Global Economic BRICs,” billions in corporate funding flooded into Brazilian, Russian, Indian, Chinese, and eventually South African markets. This led to the re-routing of supply lines, and changes in marketing and manufacturing strategies. Investors capitalized on “BRIConomics” and O’Neill’s paper would make the acronym BRICS synonymous with emerging market economies.
Now, there are new contenders for streams of foreign investment, and these promising emerging market economies have three critical variables in common: strong political leadership, stable governance, and resilient economies. A 2015 Fortune article by Ian Bremmer identified India, Indonesia, Malaysia, Poland and Kenya as promising emerging market economies to focus on for the next five years.
Indonesia’s president, Joko Widodo, started as a furniture maker and became mayor of Solo, a city of 500,000. His success in cleaning up corruption led to his election and nomination by Fortune as one of the world’s 50 greatest leaders. Among his successes making Indonesia one of seven promising emerging market economies are reducing costly fuel subsidies, plans to promote business in the oil and gas sector, higher spending on education and the creation of new commercial markets.
Malaysia’s promising emerging market economy hinges on the acceleration of its Economic Transformation Program, which will draw foreign investors through a generous tax incentive program. Malaysia stands to benefit from the economic slowdown in China, and Prime Minister Najib Razak is be expected to increase spending on education, healthcare and infrastructure. The country hopes to have a balanced budget by 2020 on the heels of its fiscal reform agenda.
Poland continues to move towards a more liberal economy, benefitting from the strong governance of the Civic Platform Party. Structural reforms and the development of national infrastructure is expected to attract international investment, particularly in the Department of Energy and the Ministry of National Defence.
Kenya is considered the second-safest of the promising emerging market economies for investment. While neighboring African countries suffer from extreme violence, drought, and poverty, Kenya experienced a six percent growth rate in 2015, according to its Treasury. Kenya’s government has improved conditions for business to thrive, installed a railway system shoring up the country’s infrastructure, improved roads and the energy sector and significantly improved the cost of living for all Kenyans.
Investment in promising emerging market economies over the last two decades has been a tidal wave of concern and enthusiasm. Currently, the emerging global market is generating a return of 13 percent and is favored by investors searching for a positive return. In many countries, cash rates are running close to zero and trillions of dollars’ worth of government bonds are trading at negative yields. This puts investors at enough ease to take some risk, and if all goes well, both private investors and the communities of emerging economies will stand to benefit.
– Addison Grace Evans