Emerging markets are growing at more than double the rate of developed economies like the U.S., Japan, or Western Europe. The economic statistics are impressive, but to walk the streets of places like China, India, and Eastern Europe and feel the growth on the streets makes an even bigger impression.
I’m interested in emerging markets not only from a business or investing perspective (I have some money in an index fund with this emphasis). The cultural and political changes which accompany massive growth are equally interesting. They’re at times disheartening (witness the millions of Chinese who have been displaced by their government) but they never fail to excite and surprise.
Last week I had coffee in Moscow with Tom Nastas, a local VC there, who gave me a good overview of the emerging markets and how Russia / Eastern Europe fits in.
After reflecting on our conversation, I concluded that I’m much more interested — from a business perspective — in Eastern Europe, Latin America, Dubai, Israel, and Southeast Asia than I am in China and India. From my limited perspective and experiences, I see China and India as overhyped and crowded. India sorely lacks physical infrastructure and China lacks sustainable political infrastructure, among other things. Both problems can and will be overcome in time. But there’s a larger problem for the enterprising individual or small business who’s getting into the game now as opposed to 10 years ago: western entrepreneurs are swarming both countries, driving up prices and crowding the battle for genuine opportunities. Be cautious where others are greedy, goes the saying.
Today I read a solid, brief essay of the state of emerging markets hosted by my publisher Wiley as part of its "Directions" series (where the future is going). The author, Mark Mobius, identifies the potential of Eastern Europe:
Within the emerging markets realm, Eastern Europe in particular has undergone significant developments. A major event was the accession of 10 additional countries into the European Union (EU), which expanded the trade bloc to 25 members in May 2004; the addition of Bulgaria and Romania this year has brought the total number to 27. Improved corporate governance, robust earnings growth, consolidation and M&A activities in the region as a result of EU convergence, a reduction in sovereign risk, and a stronger macroeconomic environment have all contributed to the stock price appreciation and the re-rating of Eastern European equities over the last five years. While the correction in oil prices from the high in 2006 has impacted oil-exporting markets such as Russia, we expect oil prices to remain firm because of geopolitical and bottleneck problems. The 12 Eastern European markets which gained entry into the EU in 2004 and 2007 are expected to continue to benefit from EU convergence, access to funds, relatively lower labor costs, business-friendly tax laws, cost competitiveness, higher GDP growth, and foreign direct investment inflows.
The entire essay is worth a read.
Mark Mobius is probably the greatest emerging markets investor of all time, as well as one of the greatest investors period. When he talks, we all should listen.
A friend of mine has also reported significant problems in China for western investors/entrepreneurs who are not or don’t look east Asian. It’s unfortunate, but can sometimes happen. (yet, he did go back, to work for someone else).
Some interesting facts on Bulgaria:
SAP Survey
http://divedi.blogspot.com/2007/08/sap-survey.html
Ben- Did Tom Nastas or Mark Mobius, the author of this essay, happen to comment on the resurfacing debate surrounding Turkey’s accesion into the EU? Or, perhaps more percisely the sorts of implications a Turkey accension into the EU would have on the strengthening Eastern European markets and EU economy as a whole? This I find to be an especially interesting question given the recent political success of Prime Minister Abdullah Gul in the Presidential elections, a figure who with his secular loyalty and anti-Islamist reforms has undoubtedly taken a leading role in opening up the forum for recent Turkey-EU membership talks– of course not without the help of recent Eastern European economic success.
I also must say that the issue of EU integration/expansion/enlargement is an extremely provocative and revealing one. As Cialdini alludes to in his book, ‘Influence: the Pyschology of Persuasion’, it is very telling to see how far certain institutions will go to preserve their particular values, practices, or bi-laws when put under pressure. In the case of Turkey, what new reasonings (if any) will the EU muster up to effectively barr another round of Turkey-EU admittance talks. Will arguments surrounding Women’s rights and Islam still suffice as the modern, secular, and democratic Turkey continues to grow stronger? I am curious to see how this situation will unfold mainly because it will surely testify what it truly takes to be a member of EU– leaving plenty of wiggle room– and how far the EU will go to preserve the memership qualifications of their institution.
Ben/Kevin: I can’t speak much to the political aspects of Turkey accesion other than my belief that integration is a good thing for all, increases trade, tech transfer, etc.