Developing markets may shine again - February 21, 2016
This year started with a serious market correction which brought light to many weakness of the global market. The optimism is over and now we see pessimistic analyses even about developed countries. We were only used to this pessimism about developing countries after the sharp fall of commodities and the growing corporate debt due to the strong USD. Because of this, many investor is afraid of developing countries, but there are signs that show that it might a good idea to go against the beliefs of the majority.
This year, after seeing the problems with global stock exchange, the FED will probably wait with rate hikes. Instead of the 3-4 rate hikes expected last December there might be no rise at all. This may stop the strengthening of USD, maybe even start the fall of greenback. This can reveal some pressure from developing countries and commodities.
Of course, there are differences between developing countries and not all of them can be the winner of this situation. Countries where low energy prices can help domestic consumption and the growth of GDP, countries where governments are open to start economic reforms could be real winners this time.
India is a country like that, and it can have the fastest growing economy this year with a 7.8% growth according to the World Bank’s new prognosis. Indian government continually eases the flow of foreign currency into the country; they have no real export exposure to developing countries like China and Brazil and even the slowdown of these is not a serious problem for them. All this may have positive effects on the Indian Nifty 50 index. The index has a potential 20-30% growth in the next 1-1.5 year.
Brazil might also have great years, even if the country was vulnerable lately. Investments of the Olympics, the slowly starting reforms and the export stimulating by the weak currency may all lead to the acceleration of the economy. Probable turnaround in oil prices would urge Brazil’s economy even more.
These developing countries still have their risks, but there are signs that can lead to rising. It might be a great idea to consider investing here, with proper diversification of course.
An edited version of this post appeared on: