Interactive Investor

Emerging markets outlook 2023: who burns brightest among rising stars?

22nd December 2022 13:00

Rodney Hobson from interactive investor

India overtook the UK as the fifth-largest economy in the world at the end of 2021, while one nation among the BRIC and MINT countries could come out of the shadows this year, according to overseas investing expert Rodney Hobson.

Remember the BRIC countries? Even more challenging is to remember the MINT acronym. These were the eight countries (nine if you count South Africa, which was belatedly added to make BRICS) that were supposed to emerge as the nations of the future. They have enjoyed, or suffered, mixed fortunes.

Those two acronyms have been pretty much forgotten, but it is worth remembering that Russia and China in the first group did make their presences felt on the world stage even if Brazil and South Africa have proved to be perennial disappointments for investors.

Now the other member of the group, India, is at last emerging as the place to be. Like China, it has a population of more than 1 billion but unlike China it has a growing young demographic bias.

Its workforce has developed new skills, particularly in computing technology where China has also developed an edge. As suspicions grow over China’s motives in this field and accusations fly that it is using its expertise to spy on the West, India has the opportunity of providing a more trusted partner.

India has been offering generous subsidies and other incentives to lure companies away from China but it could take many years to build the necessary momentum given the strong lead that China has opened up. Western companies have built such substantial supply chains in China that it will prove very costly to abandon them and start all over again in a new country.

In any case, wages are considerably higher in India, so foreign companies will need to find savings in other production costs to make a switch economically worthwhile.

Even so, India overtook the UK as the fifth-largest economy in the world right at the end of 2021, according to figures released this year by the International Monetary Fund (IMF), having moved up relentlessly from 11th a decade ago. With the Indian economy set to have grown by 7% this year, that status has been consolidated and indications are that fourth place will be secured within the next five years.

Like China over the past 30 years, India will need to thrive on trade and it may yet live to regret not joining either of Asia-Pacific’s two most important trade agreements, the Comprehensive and Progressive Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, which cover most international trade and commerce in the region.

Many countries, including the UK and the eurozone, see a trade agreement with India as a trophy worth striving for but the South Asian nation persists in playing hard to get. For India to really take off, it also needs to get some international alliances in place.

Air India, the national flag carrier, does seem to be gearing up for global expansion. It is understood to be seeking to buy 500 new short-haul and long-haul aircraft over the next 10 years, so it can compete with Emirate Airlines, which has a head start on many routes that Air India is eyeing up.

Controversy does surround prime minister Narendra Modi, who has proved a firm but obdurate leader. He has ambitions for rapid economic expansion and for international trade, but has so far kept his cards close to his chest. We should see concrete signs of his intentions during 2023.

The persecution of Muslims under his heavily pro-Hindu stance has uncomfortable echoes of the treatment of the Uighur minority in China. However, foreign leaders are likely to feel that a slice of trade with a large growing nation makes turning a blind eye to India’s domestic situation hard to resist.

Despite several potential headwinds, India looks set to be, alongside Japan, one of the best performing of the world’s major economies over the next few months. Investors must decide whether that momentum can be maintained. Recent history suggests that it can and will be.

Now for the MINT countries - Mexico, Indonesia, Nigeria and Turkey - that were once touted as the economies that would break spectacularly into the big time, the countries to invest in for growth stocks during a supposed second wave of emerging nations.

Do not hold your breath, but Mexico could come out of the shadows as the one MINT country to make it into the big time if it can capitalise on the global crises of 2022. US companies are searching for a more reliable trading partner to replace China and the spike in transport costs suggests that somewhere nearer at hand would be more appropriate.

Promoting production on its southern border could help the US to stem the flow of illegal immigrants into Texas, another reason why such a move would be encouraged.

This is a long shot. If you fancy taking a risk, do not back your hunch with money you cannot afford to lose.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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