CITIUS, altius, fortius – faster, higher, stronger. In the past, the Olympic motto might easily have been used to describe certain emerging markets, whose higher levels of growth and rates of return were once seen as the investment antidote.
However, of late, vast swathes of the emerging world have succumbed to global economic headwinds. At Canaccord Genuity Wealth Management, we have sought to identify those countries that could still be viewed as potential medal winners in the marathon which is economic development.
GOLD: India
If India enacts the necessary structural reforms – and assuming that the macroeconomic environment is navigated successfully – it is entirely possible that real growth in the economy could reach double digits in the coming years.
Realising this potential will depend on Prime Minister Narendra Modi successfully driving through economic and structural reforms.
The reformation of India’s tax system is a potential game-changer. Following central government parliamentary approval, there is potential for India’s plethora of state and local taxes to be replaced by one goods and services tax in the coming months, creating a unified Indian economy for the first time.
SILVER: Indonesia
By reappointing World Bank managing director Sri Mulyani as finance minister, hopes have been raised that measures will be taken to boost economic growth and increase the country’s low tax revenues. In addition, policy makers have recently adopted a new financial stability law, while bank regulation is slowly improving.
Over the long-term, the Indonesian economy will benefit from a favourable demographic profile which will see the state dependency ratio decline over the next decade – in sharp contrast to much of the rest of the world.
Ultimately, a sustainable growth rate of seven to eight per cent should not be beyond the realms of possibility, and in a low-growth world, this should not be downplayed.
BRONZE: Mexico
While the economy has recently faced headwinds – including manufacturing weakness in the United States, the prospect of a Donald Trump presidency and policy tightening – Mexico remains one of the few emerging markets that could grow faster in the next decade than it did in the last.
Mexico’s balance sheet is extremely strong, with debt to GDP standing at a relatively low 48.6 per cent, of which over three-quarters is denominated in peso. Private sector debt is also low, at 20 per cent of GDP.
The progress of the economy will not be plain sailing, but the potential for further improvement is evident.
