The effects of emerging markets on economies through 2016

Many financial analysts have abandoned all hope of an economic rebound in 2016. After starting the year with the 22.6% drop in the Shanghai Stock Exchange, the global economy took even more hits from economic struggles and protests in Venezuela, an economic slowdown in Nigeria, and the effects of a failed coup in Turkey.

Now, with top-tier companies failing to hit estimated profit marks, stocks tumbling, and fiscal outlooks being lowered across the board, some analysts have taken to describing the global economy as downright “challenging,” “fragile,” and “grim.”

But despite the dreary headlines dominating the media as of late, most of these assertions regarding the economy are nothing more than exaggerated overreactions to a few unfavourable events. In fact, a closer examination of the MSCI Emerging Markets Index shows that investors who are more interested in long-term prospects than fantastical headlines have already begun finding great opportunities in some key emerging markets.

How emerging markets are defying expectations

To counteract the volatility of the global market, the U.S. Federal Reserve has held off raising interest rates this year in an effort to subdue the strength of the U.S. Dollar. At the same time, a number of emerging markets have been aggressively instituting policies aimed at mitigating risks for current and future investors, including:

• The People’s Bank of China and the Reserve Bank of India, which have expanded their respective nations’ money supplies
• Nigeria and Egypt, which have devalued their currencies in an effort to increase exports
• The government of India, which recently gave its employees a 24% salary hike to boost consumer spending power throughout the country

Already, these efforts have seen positive effects. Foreign investor outflow from the Nigerian Stock Exchange has slowed considerably after a peak last year, suggesting that conditions have improved enough to attract new investors. The OPEC Basket monthly average price has seen a 73.1% increase over the past six months; signalling that the stabilisation of commodity prices means a much lower risk for investors.

The economic outlook for 2016 and beyond

Though aspects of the global economy have been slightly unstable — and a number of advanced economies have responded by tightening their monetary policies and adding to the uncertainty — the reflationary policies of emerging markets offer bountiful opportunities for investment. And as more and more investors turn their attentions to these emerging markets, the global economy could see a bit of an uptick in activity.

For the remainder of 2016 and beyond, investors should consider participating in some of the following emerging markets:

1. South Africa and Nigeria — Those looking to take advantage of investment opportunities at bargain prices will find that the subdued equities markets in both SA and Nigeria hold a high potential for positive returns.

2. Oil-rich nations — The Venezuelan, Nigerian, Russian, Angolan, and Indonesian economies should also benefit from the rebound in oil prices, which means investors can anticipate a rise in consumer spending in those markets as well.

3. India — This market should be of particular interest to investors as consumer spending power continues to rise, proliferating ecommerce and propelling the fast-moving consumer goods segment of the economy to untapped opportunities.

As the global economy endures a transitional period, emerging markets should be investors’ primary focus in the coming months. With reflationary policies in place to cushion against global economy shake-ups, there will be better conditions for investment, higher consumption, and an uptick in output all across these markets.

Which emerging markets do you believe have the most potential for a high return on investment?

Feature image: Kevin Dooley via Flickr.