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1. Emerging Markets 2. Introduction 3. Characteristics 4. Formation Of Emerging Markets 5. Rise Of Emerging Markets 6. Challenges 7. Prospects 8. BRIC Emerging Economies 9. BRIC: The Path To 2050 10. BRIC Summit 11. BRIC: The World's Biggest Emerging Economies 12. Emerging Market India 13. Capital Flows To Emerging Economies 14. Emerging Economies To Drive Global Recovery In 2010 15. Bibliography
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Emerging markets are countries that are restructuring their economies along marketoriented lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct investment. Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Currently, there are approximately 28 emerging markets in the world, with the economies of China and India considered to be by far the two largest. According to According to the World Bank, the five biggest emerging markets are China, India, Indonesia, Brazil and Russia. Other countries that are also considered as emerging markets include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea. These countries made a critical transition from a developing country to an emerging market. Each of them is important as an individual market and the combined effect of the group as a whole will change the face of global economics and politics. Developing countries that are neither part of the least developed countries, nor of the newly industrialized countries Term Originally brought into fashion in the 1980s by then World Bank economist Antoine van Agtmael, the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China, India, some countries of Latin America (particularly Argentina, Brazil, Chile, Mexico and Peru), some countries in Southeast
Asia, most countries in Eastern Europe, Russia, some countries in the Middle East (particularly in the Persian Gulf Arab States), and parts of Africa (particularly South Africa). Emphasizing the fluid nature of the category, political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets.
First, they are regional economic powerhouses with large populations, large resource bases, and large markets. Their economic success will spur development in the countries around them; but if they experience an economic crisis, they can bring their neighbors down with them. Second, they are transitional societies that are undertaking domestic economic and political reforms. They adopt open door policies to replace their traditional state interventionist policies that failed to produce sustainable economic growth. Third, they are the world's fastest growing economies, contributing to a great deal of the world's explosive growth of trade. By 2020, the five biggest emerging markets' share of world output will double to 16.1 percent from 7.8 percent in 1992. They will also become more significant buyers of goods and services than industrialized countries. Fourth, they are critical participants in the world's major political, economic, and social affairs. They are seeking a larger voice in international politics and a bigger slice of the global economic pie.
Formation of Emerging Markets
There are two potential causes for the creation of emerging markets: the failure of state-led economic development and the need for capital investment. First, state-led economic development failed to produce sustainable growth in the traditional developing countries. This failure and its tremendous negative impact pushed those countries to adopt open door policies, and to change from the state's being in charge of the economy to facilitating economic growth along market-oriented lines. Second, the developing counties desperately needed capital to finance their development, but the traditional government borrowing failed to fuel the development process. In the past, the governments of the developing countries borrowed either from commercial banks or from foreign governments and multilateral lenders like the IMF and the Word Bank. This often resulted in heavy debt overload and led to a severe economic imbalance. The past track record of many developing countries also demonstrates their inability to well manage and efficiently operate the borrowed funds to support economic growth. In light of the unsatisfactory results of government borrowing, developing countries began to rely on equity investment as a means of financing economic growth. They seek to attract equity investment from private investors who will become their partners in development. To attract equity financing, a developing country has to establish the preconditions of a market economy and create a business climate that meets the expectations of foreign investors. This change in financing sources thus became another factor leading to the rise of emerging markets.
Rise of Emerging Markets
The rise of emerging markets is changing the traditional view of development as follows. First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations. Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration. Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global
interdependency. The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.
In their effort to create a market economy and to ensure sustainable development, emerging markets still face big challenges that come from fundamental problems associated with their traditional economic and political systems. A market economy requires those countries to redefine the role of the government in the development process and to reduce the government's undue intervention. Another serious problem that those countries have to confront is controlling corruption, which distorts the business environment and impedes the development process.
An even more challenging task for those countries is to undertake structural reforms with their financial system, legal system, and political system, so as to guarantee a disciplined and stable economy that is relatively free of political disturbances and interference.
Emerging markets are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising. MSCI list (Morgan Stanley Capital International) as of April 2009, MSCI classified the following 22 countries as emerging markets: Brazil Chile China Colombia Czech Republic
6. 7. 8.
1. 2. 3. 4. 5.
9. 10. 11. 12. 13. 14. 15. 16.
Indonesia Israel Malaysia Mexico Morocco Peru Philippines Poland
Russia South Africa
Taiwan Thailand Turkey
Egypt Hungary India
The BRIC Emerging Economies
Sao Parulo, Brazil
Goldman Sachs argues that the economic potential of Brazil, Russia, India, and China is such that they could become among the four most dominant economies by the year 2050. The thesis was proposed by Jim O'Neill, global economist at Goldman Sachs. These countries encompass over 25% of the world's land coverage and 40% of the world's population and hold a combined GDP (PPP) of 15.435 trillion dollars. On almost every scale, they would be the largest entity on the global stage. These four countries are among the biggest and fastest growing emerging markets.However, it is not the intent of Goldman Sachs to argue that these four countries are a political alliance (such as the European Union) or any formal trading association, like ASEAN. Nevertheless, they have taken steps to increase their political cooperation, mainly as a way of influencing the United States position on major trade accords, or, through the implicit threat of political cooperation, as a way of extracting political concessions from the United States, such as the proposed nuclear cooperation with India.
Dreaming with BRICs: The Path to 2050
Moscow, Russia. The BRIC thesis (defended in the paper Dreaming with BRICs: The Path to 2050) recognizes that Brazil, Russia, India and China have changed their political systems to embrace global capitalism. Goldman Sachs pr, to be the dominant global suppliers of manufactured goods and services while Brazil and Russia would become similarly dominant as suppliers of raw materials. Cooperation is thus hypothesized to be a logical next step among the BRICs because Brazil and Russia together form the logical commodity suppliers to India and China. Thus, the BRICs have the potential to form a powerful economic bloc to the exclusion of the modern-day states currently of "Group of Eight" status. Brazil is dominant in soy and iron ore while Russia has enormous supplies of oil and natural gas. Following the end of the Cold War or even before, the governments comprising BRIC all initiated economic or political reforms to allow their countries to enter the world economy. In order to compete, these countries have simultaneously stressed education, foreign investment, domestic consumption, and domestic entrepreneurship.
Mumbai, India. The Goldman Sachs global economics team released a follow-up report to its initial BRIC study in 2004.The report states that in BRIC nations, the number of people with an annual income over a threshold of $3,000, will double in number within three years and reach 800 million people within a decade. This predicts a massive rise in the size of the middle class in these nations. In 2025, it is calculated that the number of people in BRIC nations earning over $15,000 may reach over 200 million. This indicates that a huge pickup in demand will not be restricted to basic goods but impact higherpriced goods as well. According to the report, first China and then a decade later India will begin to dominate the world economy. Yet despite the balance of growth, swinging so decisively towards the BRIC economies, the average wealth level of individuals in the more advanced economies will continue to far outstrip the BRIC economy average. Goldman Sachs estimates that by 2025 the income per capita in the six most populous EU countries will exceed $35,000, whereas only about 500 million people in the BRIC economies will have similar income levels. The report also highlights India's great inefficiency in energy use and mentions the dramatic under-representation of these economies in the global capital markets. The report also emphasizes the enormous populations that exist within the BRIC nations, which makes it relatively easy for their aggregate wealth to eclipse the G6, while perEmerging Markets 10
capita income levels remain far below the norm of today's industrialized countries. This phenomenon, too, will affect world markets as multinational corporations will attempt to take advantage of the enormous potential markets in the BRICs by producing, for example, far cheaper automobiles and other manufactured goods affordable to the consumers within the BRICs in lieu of the luxury models that currently bring the most income to automobile manufacturers. India and China have already started making their presence felt in the service and manufacturing sector respectively in the global arena. Developed economies of the world have already taken serious note of this fact. A Goldman Sachs paper published later in December 2005 explained why Mexico and South Korea were not included in the original BRICs. According to the paper, among the other countries they looked at, only Mexico and South Korea have the potential to rival the BRICs, but they are economies that they decided to exclude initially because they looked at them as already more developed.
Pudong, Shanghai, China. This report compiled by lead authors Tushar Poddar and Eva Yi gives insight into "India's Rising Growth Potential". It reveals updated projection figures attributed to the rising growth trends in India over the last four years. Goldman Sachs assert that "India's influence on the world economy will be bigger and quicker than implied in our previously published BRICs research". They noted significant areas of research
and development, and expansion that is happening in the country, which will lead to the prosperity of the growing middle-class. "India has 10 of the 30 fastest-growing urban areas in the world and, based on current trends, we estimate a massive 700 million people will move to cities by 2050. This will have significant implications for demand for urban infrastructure, real estate, and services." In the revised 2007 figures, based on increased and sustaining growth, more inflows into foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India's GDP per capita in US$ terms will quadruple", and that the Indian economy will surpass the United States (in US$) by 2050. It states that the four nations as a group will overtake the G7 in 2032.
Leaders at the 1st BRIC summit. From left are: 1. President Luiz Inácio Lula da Silva of Brazil; 2. President Dmitry Medvedev of Russia; 3. President Hu Jintao of China, and 4. Prime Minister Manmohan Singh of India. The BRIC countries met for their first official summit on 16 June 2009, in Yekaterinburg, Russia, with Luiz Inácio Lula da Silva, Dmitry Medvedev, Manmohan Singh, and Hu Jintao, the respective leaders of Brazil, Russia, India and China, all attending. The core focus of the summit was related to improving the current global economic situation and
discussing how the four countries can better work together in the future, as well as a more general push to reform financial institutions. There was also discussion surrounding how developing nations, such as those members of BRIC, could be better involved in global affairs in the future. In the aftermath of the summit the BRIC nations suggested that there was a need for a new global reserve currency that is 'diversified, stable and predictable' The statement that was released stopped short of making a direct attack on the perceived 'dominance' of the US dollar, something which the Russians have been critical of; however, it still led to a fall in the value of the dollar against other major currencies. The foreign ministers of the BRIC countries had met previously on May 16, 2008 also in Yekaterinburg. One week prior to the summit, Brazil offered $10 billion to the International Monetary Fund. It was the first time that the country had ever made such a loan. Brazil had previously received loans from the IMF and this announcement was treated as a significant demonstration of how Brazil's economic position had changed. China also announced plans to invest a total of $50.1 billion and Russia planned to invest $10 billion. Date Host country Host leader Location held 1st June 16, 2009 Russia Dmitry Medvedev Yekaterinburg 2nd April 16, 2010 Luiz Inácio Lula da Silva Brasilia Brazil
Brazil, Russia, India, and China (BRIC)
Brazil President (head of state and government): Luiz Inácio Lula da Silva Currency- Real (US $1= 1.87) GDP (nominal)- $1.572 trillion [10th] GDP (PPP)- $2.024 trillion [9th] Per Capita- $7.7 thousand [60th] Russia President (head of state): Dmitry Medvedev Prime Minister (head of government): Vladimir Putin Currency- Ruble (US $1=30.362) GDP (nominal)- $1.676 trillion [8th] GDP (PPP)- $2.103 trillion [8th] Per Capita- $8.8 thousand [54th] India President (head of state): Pratibha Patil Prime Minister (head of government): Manmohan Singh Currency- Rupee (US $1=46.62) GDP (nominal)- $1.242 trillion [12th] GDP(PPP)- $3.298 trillion [4th] Per Capita- $1.0 thousand [139th] China President (head of state): Hu Jintao Premier (head of government): Wen Jiabao Currency -Yuan (US $1=6.82) GDP (nominal)- $4.327 trillion [3rd] GDP(PPP)- $8.767 trillion [2nd] Per Capita- $3.5 thousand [99th
BRIC: The world's biggest emerging economies
The world’s four biggest emerging economies are grabbing growing volumes of global capital flows, with firms and fund managers increasingly viewing BRIC consumer demand as a high-return, relatively safe investment bet. Brazil, Russia, India and China, with 40% of the world’s population, account for about 20% of its gross domestic product, a share Goldman Sachs said will rise to equal that of the G7 industrialized countries as early as 2032. There was a sign this year of the shape of things to come as China overtook the US as the world’s biggest car market. And as incomes of 2.5 billion people steadily rise, company’s profits as well as stock markets will feel the effect. No surprise that cash direct investment and portfolio capital — is increasingly gravitating to these giants. Fund tracker EPFR Global said BRIC-geared equity funds absorbed almost $20 billion in January to November 2009. This is double 2007 levels and equivalent to 40% of what was taken by emerging stock funds, some of which also went to the BRICs.“The trend of BRIC out performance has been very powerful and should continue as growth is concentrated in these markets,” said Martial Godet, who helps manage 37 billion euros in emerging stocks at BNP Paribas Asset Management in
Paris. “We are betting on the largest, highest-growth markets with the biggest populations and good liquidity levels.” To capitalise on BRIC consumer demand, Goldman Sachs suggests investing in a basket of 50 developed market stocks positioned to benefit from the BRICs theme, and one of 50 BRICs companies that are likely to emerge as global market winners. Already, BRICs are outgunning broader emerging stocks the MSCI BRIC index is up 90% in 2009 versus 70% for MSCIEM ,with only China lagging. An investment in Brazilian stocks in 2000 would have quadrupled by now while cash put in emerging stocks would merely have doubled. And a buyer of world stocks would have lost money. As monetary policies start to tighten next year, investors on average expect BRIC stocks to rise 20-25% in 2010 after the near triple-digit returns of 2009. But in future the BRICs as the most liquid emerging markets will gain most from higher allocations to emerging markets. Goldman Sachs economist Jim O’Neill, who first came up with the BRIC concept, projects the BRICs to comprise almost half global stock markets by 2050 from less than 10% now. He says it is inevitable more cash will move to the BRIC markets. “If you think of a GDP-weighted benchmark, it would be considerably higher than the current MSCI-type ones,” O’Neill said, referring to indices that use GDP to weight countries. “For some asset managers, especially the sovereign wealth funds, this is what they are moving towards.”
Fund managers say cash will go where growth is — or where the value is. With China and India posting the highest growth in the world, and Russia trading at a 40% discount to emerging markets, the bloc should remain an investment magnet. Consumer demand is seen as key to the post-crisis global recovery, and at the heart of the BRIC story is the consumer. This is the main driver behind the surging tide of direct investment into the BRICs which took in 16% of global direct investment flows in 2008. This is a third up from the previous year, a total $265 billion, or over half of what was received by the 16nation European Union, United Nations agency UNCTAD says. Take China’s car market, which made headlines earlier this year. With 10 cars per 1,000 Chinese, there is a lot more room for sales growth than the US which has one car for two people. What is happening is a rebalancing of global consumption, away from advanced economies and towards emerging markets, says Goldman Sachs, a process expedited by the shock caused to household wealth and employment by the financial crisis. GS predicts Chinese household consumption to rise 10% in 2010, with Brazilian and Indian demand also up over 5%, while spending in the developed world remains flat. Global corporates have cottoned on. Japanese electronics firm Panasonic for instance said last month it aims for 15-20% annual sales growth in the BRICs to compensate for falling demand from Japan’s shrinking population. No wonder then that firms are rushing to set up production in the BRICs — UNCTAD’s 2009-2011 investment outlook survey found all four countries to be in the top five most favoured investment destinations with China topping the list.“What investors in BRIC are saying is: we believe in GEM (global emerging markets), but to a great extent, what’s happening in GEM is in these four countries,” said Alex Tarver, who helps manage $1.9 billion in
BRIC stocks at HSBC. “It is a microcosm and one that’s large enough to drive regional growth.”
Emerging Market India
India ranks among the well known emerging markets in the global economic scenario. Since the economic liberalization policies were undertaken in the 1990s, emerging market India has really prospered which has helped to boost the Indian economy to a great extent.
Factors behind the favorable emerging market in India
In simple terms, emerging market is used to evaluate the socio economic scenario of the country in terms of the growth of the market and industrial development. According to the recent survey, there are around 28 emerging markets in the world out of which India ranks in the second place. The main factors behind this booming emerging market are the economic liberalization and the perfect competition market, the high standard of living and per capita income, the development of medical facilities and infrastructure, the increase in foreign investments and so on. Over the few years, there has been a significant growth of the Indian market which has resulted in the high Gross Domestic Product (GDP). The average annual growth rate ranges between 6 to 7 %. The growth rate of GDP was around 6.7 % during the financial year 2008-09. To boost the emerging market India, the government is also taking some positive steps. The main aim is to increase the growth rate to around 9 %. Due to the favorable emerging market, more and more industries are being set up and the customer base is also increasing. Currently, India is the 4th largest economic system in the world in terms of the purchasing power parity.
The recent economic development has also put a positive impact on the various sectors. There has been a significant development in the agricultural, service and industrial sector in the country. Today, to complement the rapid pace of economic growth, the service sector contributes around 54 % of the annual Gross Domestic Product.
Foreign investment and emerging market India
The increase in foreign investment has also cast a favorable effect on the emerging market in India. Due to the increase in demand, well known global companies are investing in the Indian market. The foreign institutional investments (FII) amount has reached around US$ 10 billion mark. In case of the Foreign direct investments (FDI, there has been a significant increase of around 85.1 % from US$ 25.1 billion to US$ 46.5 billion.
Capital flows to emerging economies
The Institute of International Finance, a bankers’ group, reckons that net flows of private capital to emerging economies fell to $435.2 billion in 2009, a fall of more than a third from $667.1 billion in 2008. It expects them to surge to $721.6 billion this year. Private capital fled recession-hit emerging economies in Europe, which saw flows fall from $267.4 billion in 2008 to a mere $20.3 billion last year. Flows of official funds, mainly money from multilateral institutions like the IMF, increased by more than 50% but could make up only a little of the slack. By contrast, private flows to fastgrowing emerging economies in Asia went up last year, by 44% to $236.3 billion. They are expected to rise further in 2010
Emerging economies to drive global recovery in 2010
Emerging market economies having large domestic markets and ample savings will continue to power the global economic recovery in 2010 The economic revival, which is gaining steam, is led by policy-driven domestic demand in the emerging economies of Asia and LatinAmerica, "For the first time in modern history, the developing world particularly China, India and Brazil has supplanted the US in leading the world out of recession "the agency said in a report today. Noting that emerging economies with big domestic markets and ample savings would continue to be the main drivers of the global recovery, the report said investment in infrastructure would remain important in these markets. "Governments and central banks around the world have spent more than USD 11 trillion to support the financial sector and about USD 6trillion on fiscal stimulus programs," In the absence of these measures, private demand would have collapsed, and the resulting social and economic costs would have been even greater. "However, costly fiscal stimulus measures and bank bailouts, combined with lower revenues, have rapidly eroded public finances, threatening longer-term fiscal sustainability in some countries," it added.
www. mapof India.com/India-as-emerging.market en.wikipedia.org/wiki/Emerging_markets www.emergingmarkets.org www.ft.com/indepth/bric www.euractiv.com/emerging-economies
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