PARIS: For more than 10 years, the rise of big emerging markets has reshaped the global economy but these are now slowing with maturity, and the hunt is on to identify which upstarts will be tomorrow’s tigers.
The big five, which recently helped the world through financial crisis but are now experiencing marked growing pains, are Brazil, Russia, India, China and South Africa, the BRICS.
On their heels come the MINT, PPICS and CIVETS: acronyms created by economists and investors to describe groups of countries of similar type which could lead the next wave of emerging energy.
Last week, more signs of economic tensions became evident in China and Brazil, just as the French trade insurance group Coface produced its list of what it called “neo-emerging” economies: the PPICS.
This creature comprises Peru, the Philippines, Indonesia, Colombia and Sri Lanka.
All of them have strong growth potential exceeding 4.0 percent, diversified economies, are not unduly dependent on exporting raw materials and have financial systems capable of supporting growth and of absorbing a degree of external shocks.
Coface came up with a second list of countries, making 10 in all, comprising Kenya, Tanzania, Zambia, Bangladesh and Ethiopia.
These countries also offer growth potential but carry higher intrinsic risks.
Coface said analysis of which countries, albeit smaller than the big five, could take over as leading emerging economies was needed because the big five were losing their competitive edge and had not yet become competitive in producing high valued-added goods and services.
For nearly a year, many emerging markets, and notably the BRICS, have been undermined notably by the winding down of easy-money policies in the United States, which has raised risk and caused large amounts of investment funding to flow out of emerging markets back to advanced economies.
In Russia, a sharp slowing of growth is now being exacerbated by the backdraft of the Ukraine crisis and an outflow of capital.
Brazil has just been downgraded by the Standard & Poor’s rating agency.
China is experiencing incidents in its credit system. At the beginning of March, there was a payment default on some bonds, and the beginning of a minor run on a small bank, highlighting concerns about obscure parts of the banking system.
The monitoring of the landscape of emerging markets has been underway for many years. In 1988, a barometer called the MSCI Emerging Markets Index was launched to follow 10 countries, and today it tracks 21 economies.
The MSCI investment group has also created the MSCI Frontier Markets Index covering 26 economies expected to become dynamic, ranging from Argentina to Nigeria and Sri Lanka.
Economist Jim O’Neill put the term BRIC on the map when he was an economist at US investment bank Goldman Sachs. He has now identified a new group, called MINT, comprising Mexico, Indonesia, Nigeria and Turkey.
The Economist Intelligence Unit has let loose another animal, going by the name of CIVETS, for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
The limits of labels
At ING IM bank, economist Maarten-Jan Bakkum said: “The thing with these fancy names is that they only last a few years.”
“There is a de-leveraging process going on in the big emerging markets, and this is something the frontier markets do not have because they did not have these excessive capital inflows,” he observed.
He also noted that regulatory constraints were a problem in many new emerging economies and that “liquidity really is an issue, look at Kenya or Tanzania, there simply is not much that you can buy.”
He offered another perspective. “For me, the big risk is China so I would distinguish between countries very sensitive to China, or less sensitive”
Coface economist Yves Zlotowski said Mexico had been described as an emerging economy in the 1980s because it was able to borrow from international debt markets, and the description had been a financial concept as were the new acronyms.
For Zlotowski, the big emerging economies had not yet lost their emerging roar. “Yes, their exchange rates are attacked but without catastrophic consequences,” he said.
At Saxo Banque in Paris, analyst Christopher Dembik did not need an acronym to spot “among the leaders, Peru, Colombia and Indonesia” and two others exposed to a high level of political risk, “Turkey and Nigeria.”
But none of them has a huge population and explosive growth on the scale which put the BRICS in a class all their own.
“For example, Indonesia has had growth of about 5.0 percent in recent years,” far behind the growth rates of 10.0 percent or more which China achieved.
“But maybe this will lead to more sustainable growth,” Dembik said.