Have a look at the below chart. It shows the relative GDP per capita for emerging markets compared to their developed market counterparts in 1960 (x-a

The East Asian development model

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2021-05-21 02:00:06

Have a look at the below chart. It shows the relative GDP per capita for emerging markets compared to their developed market counterparts in 1960 (x-axis) vs 2016 (y-axis).

What stands out in the above chart is that most of the countries and regions that grew wealthy over the past 50-60 years are actually in East Asia. These countries include:

The first factor is difficult to analyse and highly qualitative in nature. But the second factor is worth exploring - exactly how these countries developed and what it implies for stock selection.

Worth noting is that exports are the main driver of growth in emerging markets. Emerging markets don’t become more productive by innovations, but rather by selling foreigners a higher volume of goods.

In other words, a country that is not growing its exports should not be considered an “emerging market” in the true sense of the word.

Commodity exports from emerging markets tend to be stable volume-wise whereas prices are volatile. That makes the economic growth of commodity-producing countries volatile as well. You’ll want to play the cycle.