Emerging markets are on the rise as a direct result of innovative government reforms and seismic shifts in economic models, particularly in leading nations such as India and China. India is transforming from an agro-economy to the manufacturing hub of the world, while China is transitioning from being the world’s leading provider of cheap exports to a consumption-driven economy.
These factors have boosted growth and activity in the capital markets of developing countries. A closer look at the numbers shows that emerging market equities have actually outperformed their developed market counterparts over the past 15 years. Furthermore, a demographic dividend in developing nations will result in the emergence of a younger and well-educated middle class that is expected to drive consumption and ultimately GDP growth rate. This growth filters through to market cap expansion which underlines the dominance of emerging markets in global investing.
Institutional investors are also looking to capitalize on this as they pump money into the emerging markets and also set up business operations as well. India and China are currently the number one and two, fastest-growing economies in the world, and present a myriad of investment opportunities. An increase in foreign institutional investments over the past decade is a great endorsement and indicates confidence in the future potential of emerging markets as an asset class.
Many of the growth stories in the emerging markets were once dominant in the developed countries. In sectors such as infrastructure, technology, automotives and healthcare there is room for improvement and modernization. As developed markets have plateaued, emerging markets are hitting their stride and looking not only to catch up but also be industry leaders.