RJH writes...

Commonplace are media articles covering emerging market virility, particularly that of the regional grouping once known as the Asian Tigers. From the inevitability of Chinese global superpower domination within 20 years to compulsory instruction in chopstick wielding in a soon to be established re-education camp near you, emerging market publicists have outdone themselves.

But consider this table:

GDP & Related country data (right click and Open in New Window)

Conclusions:
1). Sinophobia surely is misplaced. China's absolute GDP is middling in the global scheme of things; and, frankly, the frequently cited Purchasing Power Parity of GDP flatters to deceive. PPP is helpful as a guide to long term exchange rates; it gives a clue (and not much more) to living standards; but as an indicator of global economic power it is misleading.

2). Unless one has specialist or expert knowledge, the UN Development Programme's Human Development Index is a helpful risk proxy for the chance of individual investments in emerging markets going pear-shaped due to, say, political upheaval in one form or another. The average emerging nation ranking in the table of 96 out of 177 is barely a start to the pursuit of happiness, a bumpy road.

3). A scan of the GDP/capita data (either version) reveals emerging market nations (Korea excepted) as cheap labour producer-economies highly dependent on consumer behaviour in more diversified and rich economies. Investing in them is most accurately a bet on OECD-type consumers continuing to buy there in heroic amounts - for it is certain their own consumption is bulimic.

4). With many emerging economies locked in an unenviable internecine production battle without the safety net of meaningful domestic consumption, can 644 million wealthy consumers really lift 2,890 million poor emerging market producers (or even 1,288 million) out of poverty in this century?

5). Emerging markets' aggregate GDP is probably not as large as you thought.

6). Diversified developed markets may not be low-cost producers, but they have the widest and most stable spectrum of investment possibilities.

7). Investors might usefully find a place for Korea in their portfolio - it is surely the pick of the emerging market crop for investments in growing, non-tradable consumer companies.

NB: [Editor: Many emerging markets, particularly China and much of southeast Asia, are energy inefficient. $70/barrel crude oil makes their undiversified economies that much more vulnerable to crisis/downturn.]

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2 comments

  1. Anonymous // 9/27/2006 01:06:00 PM

    What we care about is GDP and earnings growth of emerging market companies. Who cares if they are small now, the real question is can we make money off of emerging market growth? Are emerging market stocks cheap right now? How about addressing these much harder questions?

  2. RJH Adams // 9/27/2006 07:51:00 PM

    Thanks for the comment. I've tried to deal with it in a new post, here:

    http://alzahr.blogspot.com/2006/09/emerging-markets-systems-count.html

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