Ignore the Naysayers, Emerging Markets Are in Strong Financial Shape

Whenever bad news breaks on the global economy, experts note that emerging markets are in the worst shape. But upon closer inspection, that doesn’t appear to be the case.

Critics often cite countries like Zambia and Sri Lanka when discussing the supposed death of emerging markets. But Rockefeller International chairman Ruchir Sharma wrote in the Financial Times: “by most measures — from current account deficits to currency valuations — the 25 largest developing nations, from India to Brazil, are in strong financial shape.”

Combined, these markets account for 70% of the population and almost 90% of gross domestic product in the developing world. They’re less vulnerable to capital flight now than they were during the “taper tantrum” of 2013, which Sharma noted was “the last time global investors fled en masse in response to tightening monetary policy.”

When compared to 2013, the current accounts of these large developing nations have shifted into surplus from deficit, with only one in 10 having a troublesome deficit (i.e., above 3% of GDP), down from three in 10. Foreign exchange reserves, meanwhile, have grown to nearly 26% of GDP from 19%.

Also when comparing the current environment to 2013, on average, currencies are 40% cheaper against the dollar than they were during the aforementioned taper tantrum. Plus, in dollar terms, all the world’s 10 top-performing stock markets of 2022 are in emerging economies.

Another tailwind for emerging markets is that they’re currently ahead of the policy curve. While developing nations usually follow the Federal Reserve’s lead when it comes to monetary policy, many central banks began tightening in early 2021, a year before the Fed took action. So now, they have less work to do in their battles against inflation.

“In an economic environment that many analysts now compare to the stagflationary 1970s, some of that money will be looking for new homes,” wrote Sharma. “Against that backdrop, it is worth noting that, at least relative to the rest of the world, the 1970s was a strong decade for growth in the emerging world.”

For investors looking to invest in the internet and e-commerce sectors within the developing world, EMQQ Global has a suite of emerging markets exchange traded funds that provide such exposure. These funds include the Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ), the Next Frontier Internet & Ecommerce ETF (FMQQ), and the India Internet and Ecommerce ETF (NYSE Arca: INQQ).

By focusing on the internet and e-commerce in emerging markets, EMQQ looks to capture the growth and innovation happening in some of the largest and fastest-growing populations in the world. More than 60% of EMQQ’s assets are weighted toward China.

FMQQ, meanwhile, seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the Next Frontier Internet and Ecommerce Index (FMQQetf.com). While it has the same investment philosophy as EMQQ, FMQQ has no China-based holdings. Securities must meet a minimum of a $300 million market cap and pass a liquidity screen that requires a $1 million average daily turnover.

Launched in April, INQQ intends to capitalize on India’s rapidly growing digital and e-commerce sectors. INQQ seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the India Internet and Ecommerce Index.

For more news, information, and strategy, visit our Emerging Markets Channel.