Emerging Markets: 5 Countries Poised for Future Growth

Julian Page, Head of Fund Research, DDQINVEST

 

Egypt

This country has a lot going for it. Its population of almost 100m is young, with a median age just shy of 25 years, and are relatively well educated. GDP has increased steadily over the past few years, with above 4% growth every year over the past three years. The number of urban residents in Egypt is increasing by 1 million per year - fuelling continued investment into the housing sector.

Egypt’s geographical location is perfect for access to the three continents of Asia, Europe and Africa. For Europe, Egypt provides a perfect gateway between East to West trade opportunities. Through public infrastructure strategies the road, port and rail networks are improving rapidly, helping to expand Egypt’s large manufacturing export base.

There are vast opportunities in the oil and gas sector, in particular vast reserves of natural gas that are becoming increasingly utilised as technologies improve in the country. The Petroleum Sector Modernisation Project, which aims at realising the countries oil and gas sector’s full potential by 2021, aims to make Egypt gas self sufficient by the end of 2018. Moreover, geopolitical risks and economic disruption has created opportunities for investment in companies whose long term growth philosophy create an attractive value proposition.

Pakistan

Pakistan’s major growth potential comes in the form of its manufacturing industries, in particular textiles and automation. Investment into domestic manufacturing is set to be improved by lower energy costs and a greater domestic energy supply. According to the CIA World Factbook, Real GDP increased by 5.3% over 2017, up from 4.5% in 2016 and 4.1% in 2015.<

Pakistan is currently embarking on the ‘‘China-Pakistan Economic Corridor,’’ a series of infrastructure projects worth around $62 billion that will vastly improve its transport infrastructure and energy supply capabilities. The highways and railway systems will span the entire length of the country and will contribute greatly in reducing the estimated 3.5% loss in GDP experienced as a result of the decaying transportation network. This looks likely to further catalise the trend of increased domestic investment in the manufacturing industries.

Foreign direct investment, according to the Pakistan Board of Investment, more than doubled from 987.9m in 2015 to 2,305m in 2016, largely fuelled by substantial Chinese Investment. This has contributed to the rise in Special Economic Zones (SEZ’s), initiatives located in urban areas in a bid to improve Pakistan’s productive capacity, increase exports and promote domestic GDP.

Vietnam

Vietnam has experienced very strong GDP growth over the past few years, reaching 6.8% in 2017. The fundamental economic drivers that fuelled such high growth in 2017 are look set to continue well into 2018. The growth in the equity markets more than doubled over last year, mainly due to the large increase in IPO activity from private sector companies and as well through the government's privatization program gaining traction.

Listed companies on Vietnamese stock exchanges such as the Ho Chi Minh Stock Exchange performed very well over the past year. The country benefits from a strong balance of payments surplus with exports are growing faster than imports. Retail sales growth rose by 9% over 2017 in real teams, highlighting a strengthening domestic consumption.

Foreign investment into Vietnam is becoming increasingly easier as the Vietnamese government eases restrictions on foreign investment and ownership. Its thriving tourism industry will continue to help boost growth in Vietnam's tertiary economy and its strong Information Technology sector relative to the region will continue to grow significantly in years to come.

Indonesia

 

Indonesia has managed to increase its current account reserves by over 50% since early 2013, giving greater control to the central bank to stabilize the rupiah in the event of substantial capital outflows. The government is focused on boosting infrastructure spending, particularly in energy infrastructure, with domestic electricity generation forecast to increase substantially. Within the energy sector coal is still the main power source however there has been an emphasis on promoting renewable energy creation in the form of hydropower, geothermal and other renewable power sources.

The Jakarta composite index, a modified cap-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange, has increased almost 22% over the past year up to the 1st of March 2018. The industries contributing to this growth the most are the auto industry, the banking sector, hydrocarbon production and the retail sector. Growth opportunities therefore lie within these sectors, as well as in the Healthcare industry where favourable government policies, a rising middle class and private investment in the sector are all contributing to Vietnamese GDP growth.

Ethiopia

Ethiopia is currently transitioning through a rapid period of urbanisation and infrastructure investment. The government's ambitious Growth and Transportation plan has already vastly improved physical infrastructure as well as productively gains in the manufacturing and agriculture sector. One of the plan's main targets is for Ethiopia to become an electricity hub for Eastern Africa and hydroelectric power is already being sold to neighbouring countries including Kenya.

Ethiopia’s GDP has grown a phenomenal 8-11% over every year for the past decade up to 2016, and last year’s estimated GDP growth of 8.5% ranked the country fourth worldwide according to the CIA world factbook. Significantly, the services sector has overtaken agriculture as the major source of GDP, even though 70% of the population still work in the agriculture sector.

Despite these impressive gains, it is worth noting that GDP per capita, whilst rising year on year, is still comparatively very low; most of the increase in spending will arise from population growth and so opportunities to investment in high-value consumer industries will remain limited. Overall, Ethiopia’s manufacturing, construction and retail sector will see significant growth over the next few years.