Six Emerging Markets to Watch in 2021
“For the past 30 years, emerging markets have provided return enhancement and risk diversification opportunities for global equity investors,” says an MSCI report, and aptly so. The term emerging markets first appeared when mutual fund investments were being promoted in developing countries back in the 1980s. Ever since it is used in different connotations for various economies.
Today, many of the emerging economies are a part of the trillion-dollar club and are considered as drivers of global economic growth. The COVID-19 pandemic hit economies worldwide, emerging markets being no exception. However, a combination of a weaker dollar, better valuations earnings growth and economic revival present a case to diversify across emerging markets.
Here’s an overview of six emerging economies (in no specific order).
South Korea, Asia’s fourth-largest economy is home to some of the best-known companies like Samsung Electronics Co. Ltd., Hyundai Motors Company Limited, Kia Motors Corporation, Hyundai Heavy Industries Company Limited, and POSCO. The country has great potential to grow but needs to tackle some challenges, the heavy dependence of its GDP on exports being one of them. According to the Ministry of Economy and Finance, “Although there are uncertainties that might put a limit on recovery, the economy will likely turn around next year. Both domestic demand and exports are projected to grow amid improving global trade and recovering semiconductor demand, as well as helped by expansionary fiscal policies and economic-boost efforts.” The Ministry of Economy and Finance projects South Korea to grow at 3.2% in 2021. On December 29, 2020, a new coronavirus package worth ₩9.3 trillion was announced.
South Korea’s markets represented by Korea Composite Stock Price Index was up by 30.75% in 2020. Some of the popular ETFs tracking South Korea are the iShares MSCI South Korea Capped ETF (EWY) and Franklin FTSE South Korea ETF (FLKR).
With a negative GDP growth for consecutive two quarters, India entered into ‘technical recession for the first time in its history as a result of a complete lockdown to combat the coronavirus pandemic. Despite the current contraction in GDP, India remains a compelling growth story. On January 16, 2021, the world's biggest vaccination drive was launched by the government. In a report released on January 21, 2020, the country’s apex bank showed optimism, “In India, recent shifts in the macroeconomic landscape have brightened the outlook, with GDP in striking distance of attaining positive territory and inflation easing closer to the target.” The positive factors backing India’s economic growth are its favorable demographics, rising consumerism and low oil prices.
India’s financial markets remain ebullient along with many other emerging markets as they receive strong portfolio inflows. India is on track for receiving record annual inflows of foreign direct investment.
Some of the ETFs providing exposure to Indian stock markets are:
- MSCI India Index Fund (INDA)
- WisdomTree India Earnings Fund (EPI)
- iShares S&P India Nifty 50 Index Fund (INDY)
- PowerShares India Portfolio (PIN)
- Columbia India Consumer ETF (INCO).
Russia has achieved great economic success on the back of domestic consumption, oil exports, and a politically stable environment. However, time and again, the imposition of sanctions and fall in oil prices have strained its economy. Russia has been working to reduce its dependence on oil and gas exports by diversifying the economy. However, the shift away from oil has been slow so far. While the economy has contracted amidst the pandemic, the World Bank states, “Countercyclical fiscal policy, accommodative monetary policy, pre-crisis, sizeable macro-fiscal buffers, and targeted social policies have helped contain its impact.” The trillion-dollar economy is expected to expand by 3.8% in 2021, its fastest growth since 2012 (assuming no sanctions are imposed) according to the head of Russian credit rating agency ACRA. The opinions among asset managers are divided towards Russia’s prospects. While some find its corporate sector strong, others are skeptical about its continued dependence on fossils.
Some of the Russian stocks listed on NYSE and Nasdaq are:
There are also a few Russia-oriented exchange-traded funds, including:
- Market Vectors TR Russia ETF (RSX)
- iShares MSCI Russia Capped ETF (ERUS)
- SPDR S&P Russia ETF (RBL)
- Franklin FTSE Russia ETF (FLRU)
- Market Vectors Russia Small-Cap ETF (RSXJ)
The Russian IMOEX Index ended 2020 flat.
While Taiwan does not enjoy international recognition as a separate state, but it sure has received great recognition for its economic progress. Taiwan is one of the four countries that are part of the acronym TICK and also one of the Four Asian Tigers. Taiwan’s economy showed great resilience even during the pandemic. According to the Institute of Economics at Academia Sinica, “Taiwan’s experience in fighting the COVID-19 and maintaining a robust economic growth has become a center of worldwide focus.” The real GDP growth rate in the third quarter was 3.92% and growth in the year 2020 is expected to be 2.71%. The growth for 2021 is projected at 4.24% on the back of revival in foreign trade and robust investment growth.
Taiwan Stock Exchange Capitalization Weighted Stock Index returns for the past few years:
- 15.01% in 2017
- (8.6%) in 2018
- 23.33% in 2019
- 22.80% in 2020
Thailand represents one of the most dynamic growth stories—transforming itself from a ‘low-income’ nation to being declared as an ‘upper-middle-income’ country by the World Bank in a matter of fewer than three decades. The impact of the COVID-19 pandemic on Thailand’s economy has been harsh with a sharp decline in international tourist arrivals and a plunge in private investment levels. IMF projects the economy to slide downwards to 7.3% before it begins to rise. Given that tourism is a significant contributor to the country’s GDP, the impact of a sharp fall in tourism spilled directly and indirectly to other sectors in the economy. Despite the impact on its economy, Thailand offers great investment opportunities given its growth prospects, solid reserves, and a high potential for portfolio inflows. To support Thailand’s economy, the government has stepped in with sizable stimulus packages for businesses across sectors.
Thailand’s SET Index was down by 8.26% in 2020. The popular exchange-traded fund covering Thailand’s stock market is the iShares MSCI Thailand Capped ETF (THD).
China has been in the news more than any other nation in 2020. While China experienced a contraction of 6.8% during the first quarter of 2020, a quick recovery saved it from entering a recession as it grew 3.2% during the second quarter. China, the world’s second-largest economy, is expected to expand by 7.9% growth in 2021 as economic activity continues to normalize and domestic COVID-19 outbreaks remain under control. Many expect that the situation between China and the U.S. will see a new approach with Joe Biden as the President.
The Chinese stock markets represented by Shanghai Composite Index were up by 13.87% in 2020. There are a host of ETFs available to gain access to the Chinese stock markets, including:
- iShares China Large-Cap ETF (FXI)
- IShares MSCI China ETF (MCHI)
- SPDR S&P China ETF (GXC)
- Global X China Consumer ETF (CHIQ)
- Invesco China Technology ETF (CQQQ)
- Xtrackers Harvest CSI300 China A-Shares Fund (ASHR)
- KraneShares CSI China Internet ETF (KWEB)
Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.