Africa is widely regarded as the cradle of civilization. Building on its storied history as the bedrock for humankind, Africa is also a continent of ample investment opportunity, provided you have the resolve to be in it for the long haul.
My team and I look at Africa as two parts: (1) sub-Saharan Africa where South Africa and Nigeria dominate and (2) the North African markets, where Egypt is the largest. Of course the South African market is much larger and more developed than the other markets in sub-Saharan Africa.
We have been looking at a number of markets on the African continent, several of which have been developing quite rapidly, though they have a long way to go before their potential can be fully realized.
While it’s still considered an emerging economy, there’s no doubt China has held a good deal of influence over the global markets. Analysts and economists seem to wait with bated breath for any piece of data that confirms or denies whether the country—regarded by many as a global growth engine—is set to keep on humming or if it has begun to sputter. I’ve said many times that my long-term outlook for China remains positive, but it is true that this year we have seen some evidence of slowing in areas of China’s economy such as manufacturing, housing and exports. So the question on everybody’s mind is: Will China have a soft or hard landing?
My view is: China may not be landing at all. How can we talk about a hard or even a soft landing when growth in China is expected to be 7.5% in 2012?1 A hard landing typically is viewed as a rapid slide into recession. I don’t see that happening here. A soft landing would be considered a decline in growth to 2% or 3% which again, is not in the cards. Some economists have used the hard and soft landing terms without defining what they mean. The World Bank seems to define a gradual slowing of growth as “soft landing”2 but a decline of growth from 8% to 7%, or from 10% to 8%, does not seem like a “landing” at all.
Myanmar, once known as Burma, has democracy standing on its doorstep.
For decades under Myanmar’s former military regime, Aung San Suu Kyi led the fight for democracy as head of the National League for Democracy (NLD). A Nobel peace laureate, she retained her popular appeal over two decades while she was either imprisoned or under house arrest. Now free, on April 1, 2012 she won a landslide victory in Myanmar’s parliamentary by-elections. Drawing cheering crowds, her supporters call her “Amay Suu,” or “Mother Suu.” Hopes are high she will nurture this formerly troubled nation into a new era of democracy and personal freedom.
Many emerging market brands are no longer waiting backstage. I’ve noticed this in my travels for a while now. Most recently, for instance, I noticed people queuing at a shopping center in the U.S. all waiting to buy footwear made by a South American company. And while dining at a restaurant in another part of the world, I observed a diner at the table next to mine ordering Mexican beer.
As I said, this is not the first time I’ve noticed emerging market brands entering the developed world’s consumer mainstream. China’s hunt to acquire global brands may be seizing the most news headlines lately, but there are companies in emerging nations—including Brazil, India, Russia, Mexico and South Korea—that have been on the same search. For example, an Indian company bought a luxury British car manufacturer and a Chinese company purchased an American IT company.
In investing, as in life, there is a yin and yang. The balancing act between inflation and growth that economies often face is perhaps even more pronounced in the emerging markets world: stimulate growth too much, and inflation could flare, but stamp out inflation too hard, and growth could freeze. The fire of inflation seems to have moderated in some emerging markets (at least for the time being), and some central banks, including those in China, Brazil, Indonesia, Russia and Thailand, have taken actions over the past few months to stimulate growth. I believe the fundamentals in many emerging markets look supportive of these actions—as long as it doesn’t tip out of balance. Inflation is certainly a big challenge, and I believe it will probably be a very important consideration going forward.
No country is immune to inflation and emerging markets are no exception. In emerging markets a larger percentage of the total population is in the lower-income bracket, so inflation in such items as food and fuel are particularly important. In 2010 and through the first half of 2011, many emerging markets were engaging in policies to control inflation. However, tightening measures—such as increasing interest rates or raising bank reserve requirements—can come at a potential cost, possibly triggering currency appreciation and slowing growth. We’ve seen a bit of both in some emerging economies.
Singapore is a special place for me. This small city with few natural resources has managed to overcome obstacles to achieve a high degree of economic success. This year is special as it marks the 20th anniversary since we opened Franklin Templeton’s Singapore office. To celebrate this milestone, we chose Singapore to host this year’s first semi-annual EM Analyst conference.
To share the Singapore perspective, I asked Dennis Lim, Co-CEO of Templeton Asset Management, Ltd. and one of the pioneers who started the Singapore office with me 20 years ago, to be my guest blogger to share his insights and analysis on the changes and challenges in Singapore and across Southeast Asia.
I love hearing from readers across the globe. Thank you for continuing to reach out and share your thoughts. This post is dedicated to you. Read on for my answers to some recent questions.
I agree with your outlook on the emerging economies. My concern is the Eurozone, where there is political and currency instability. There is talk that one or more countries may leave the Eurozone/Euro currency. This could be a shock to the financial world, affecting currencies, and banks with exposure may tumble. How would you assess this risk?
– Jainmatrix, India
Yes, the Eurozone problems look to us to be serious. However, I believe the Europeans are on the right track and are addressing the fiscal issues facing not only Greece, but other countries in the Eurozone. Ultimately, these are issues impacting all developed countries, includng the U.S. and Japan.