Developing countries like Japan and the US have a higher potential of growth as compared to developed countries considering that the former have experienced historically low growth margins that are increasing, while the latter have already witnessed historically high margins, which are now on the decline. Companies in emerging markets can generate greater profits by returning to normal levels of productivity, even without any increase in revenue growth. This translates into earnings expectations that are rising faster for emerging market companies than those in developed markets, analyses Market Intelligence, Fibre2Fashion.

 

Brazil, Russia, India and China, or the BRIC countries as they are referred to as, are the top emerging countries by either nominal or PPP (purchasing power parity)-adjusted GDP (gross domestic product). The other emerging countries include Mexico, Saudi Arabia, Indonesia, South Korea and Turkey.

 

The potential for growth in emerging economies is greater than in developed countries. Margins in developed countries like Japan and the US have reached historic highs and are now declining, and are at average levels in Europe, while in emerging countries they are close to historic lows and increasing. Companies in emerging markets can generate greater profits by returning to normal levels of productivity, even without any increase in revenue growth. This translates into earnings expectations that are rising faster for emerging market companies, as compared to developed market companies.

 

Few favourable factors to invest in emerging markets:

  •         Firmer Chinese growth

  •         Product goldilocks

  •         Growth gap returning

  •         Profit growth in sight

  •        A dovish fed

 

Brazil

The Brazilian real was very strong in 2016, mainly due to favourable external factors such as a weaker US dollar and higher commodity prices. The economy on the other hand, seemed to have rebounded off its lows. The manufacturing sector has recovered in the last year, but from very low levels. The inflation rate probably topped out at 10.5 per cent in early 2016 and since then has fallen to below 9 per cent, making it easier for the central bank to cut rates later in the last year. The country's economy has probably become more vulnerable to financial shocks as the current account deficit has decreased from 4.5 per cent in 2015, and currency reserves are equivalent to nearly two years of imports. In 2016, yearly currency average increased as compared to previous year.


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