Thirty years ago, developed markets were seen as much more stable than smaller, emerging countries. But as political division and uncertainty permeates the West, the differences have faded, and emerging markets (EM) have shed the high-risk perception that accompanied foreign investment.
Sound government situations, conservative monetary policy and lower levels of debt were once staples of developed markets, while EMs posed higher risks with regard to politics and central bank policies. EM countries have evolved, along with their institutions and policies, while populist politicians have gained prominence in the West by touting the benefits of isolationism and protectionism.1
Politics are one thing, but when it comes to your own personal finances, that’s another. Monitoring the way policy positions and economic conditions impact your investments can be helpful, but the key is to personalize your portfolio. The best investment for you could be domestic securities, foreign or some combination in between. We can help you identify your lifestyle objectives for your money and suitable investments to help you reach those goals.
The world’s fastest-growing economy is currently India, but there are similarities to the United States in the 1880s. Wealth has been amassed quickly by the privileged class, and many policies established by powerful business leaders and corrupt politicians have led to income and social inequality. In between is a rapidly emerging middle class and a pattern of migration from rural villages to large urban cities. These will be perhaps the most influential factors in the country’s job production, the real estate market and consumerism.2
Other emerging economies, namely China, have taken the lead in renewable energy development, even with the U.S. oil production surge in 2018. Emerging nations can take advantage of the most current advances when investing in foundational infrastructure. In 2017, less-developed nations increased investments in nuclear, hydro, wind and solar power.3
Not all EM countries follow the same path to growth. In recent national elections, Brazil and Mexico both elected populist presidents. Brazilian President Jair Bolsonaro intends to sell many state-owned companies to jump-start a more capitalist economy, news that led Brazilian stocks to rise to record highs.4
Keep in mind investing in EM securities still comes with substantial risks, ranging from political and civil unrest to economic and market risks to less stringent financial and accounting standards. However, Morgan Stanley has indicated its preference for investment in emerging markets in 2019 due to more stabilized growth relative to the United States. Nations mentioned most favorably by the company include Brazil, Thailand, Indonesia, India, Peru and Poland.5
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1 AberdeenStandard Investments. Nov. 6, 2018. “Look sharp: Perceptions of risk in emerging markets.” https://www.aberdeenstandard.com/en-us/us/investor/insights-thinking-aloud/article-page/look-sharp-perceptions-of-risk-in-emerging-markets. Accessed Dec. 31, 2018.
2 Knowledge@Wharton. Oct. 18, 2018. “Crazy Rich Indians: An Inside Look at the Burgeoning Bollygarchs.” http://knowledge.wharton.upenn.edu/article/indias-billionaire-club-and-the-have-nots-can-the-gap-ever-be-closed/. Accessed Dec. 31, 2018.
3 Bloomberg NEF. Nov. 27, 2018. “Emerging Markets Outlook 2018.” http://global-climatescope.org/assets/data/reports/climatescope-2018-report-en.pdf. Accessed Jan. 23, 2019.
4 Paul Wallace. Bloomberg. Dec. 31, 2018. “Oil, Populist Leaders and the Dollar: Guide to Emerging Market Risks in 2019.” https://www.bloomberg.com/news/articles/2018-12-23/oil-populist-leaders-and-the-dollar-guide-to-em-risks-in-2019. Accessed Dec. 31, 2018.
5 Yen Nee Lee. CNBC. Nov. 26, 2018. “Where to put your money in 2019 — it’s not US stocks, according to Morgan Stanley.” https://www.cnbc.com/2018/11/26/stock-picks-morgan-stanley-upgrades-emerging-markets-downgrades-us.html. Accessed Dec. 31, 2018.