Back to the Future for Emerging Markets?

“Back to the future”

Despite recent volatility, emerging markets remain in traditional positions within the global economy.  As in the past many emerging markets can be characterized as low-cost production and export hubs, with favorable exchange rates, cheap company valuations, and attractive demographics that can support domestic consumption growth.  While these emerging markets drivers are largely familiar in aggregate, not all emerging markets are created equal.

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The recent period of emerging markets volatility changed corporate perceptions of emerging markets.  Emerging markets went from star “outperformers” to high-risk markets, with companies refocusing resources on recovering developed markets.

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However, the revival of developed market growth will benefit emerging markets as many retain the traditional producer-consumer relationship with develop markets.  That said, the rising tide may not lift all ships. Emerging markets where costs of doing business have increased find that companies are reallocating investment toward lower-cost production centers and/or markets with a more vibrant domestic consumer base.  For example, Samsung recently announced plans to invest $4.5 billion into building two production plants in lower-cost Vietnam in an effort to preserve margins. FSG clients can read more about our emerging markets framework and country-specific management actions by downloading the latest Global Performance Drivers report.

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