By Samuel Taube
Transcript:
Samuel Taube: Joining us today is Matthew Benjamin, the new Editorial Director of The Oxford Club and a former consultant for the World Bank. Today we’re talking about all the bullish sentiment around emerging market equities.
Matthew, thanks for joining us.
Matthew Benjamin: Good to be with you, Sam.
ST: When you’re reading about emerging markets, you come across a lot of different terminology. And I thought we could start by briefly defining some of these terms: “emerging markets,” “developing nations,” “frontier markets” and “least developed countries.” Are these all the same?
MB: Well, not quite. Several of these terms are interchangeable. When we refer to emerging market economies, we’re generally talking about nations with low to middle per capita income levels. This is compared to so-called advanced economies – the U.S., Canada, Western European nations and Japan, for example.
Yet “emerging” doesn’t mean small. The size of these economies can be enormous. China, for example, is the world’s second-largest economy, but it’s also an emerging economy because of its income level. And China is a huge piece of the emerging market story.
Brazil is another good example here – very big country with a lot of great investing opportunities. So those two terms – “emerging markets” and “developing nations” – are somewhat interchangeable.
“Frontier markets” is a little bit more specific. It’s usually used to describe a subset of emerging market economies. These countries are typically poorer than the average emerging market nation, but they are also growing and still present investing opportunities (or often do). Botswana, Ukraine, Nigeria and Vietnam are a few examples of these kinds of markets.
And lastly, you mentioned “least developed countries.” These are the world’s poorest countries. Many of them – most of them, really – are in sub-Saharan Africa. A few are outside there, like Afghanistan and Haiti.
Many of these nations are also what the World Bank would call “fragile and conflict states.” That’s because there’s often ongoing violence or civil war, or possibly a government that could collapse at any time. As I said, Afghanistan would be a good example of this. These nations are not investment opportunities. Or not at present, at least.
ST: I see. A few years ago, it seemed like many emerging market funds were severely underperforming our stock market. And now the opposite is happening – they’re largely outperforming our markets. What are some of the forces behind these trends?
MB: Well, clearly they’re outperforming because there’s a lot of interest in these regions and countries and stock markets right now. Many of these economies and stocks are closely linked to global commodity prices, like oil, metals, those kinds of things. And they were hit very hard when the commodity supercycle ended in 2014 and the price of oil and other commodities dropped dramatically.
But demand for oil and other commodities is now coming back, as you probably know, and these stocks are cheap, especially compared to U.S. stocks, which are very expensive right now.
Let me say a word about that. The total market value of …read more
Source:: Investment You
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