Emerging Countries Stock Markets. Will the Capital Inflows Return?

Dear Reader,


Many of the major emerging markets like Brazil, Russia, India, China and South Africa are below their 2008 peaks when the capital inflows were mainly directed at emerging and frontier markets, not so much in information technology as they are nowadays.

Are emerging markets ready to take the baton and lead the world to growth again? Are their stock markets going to grow strongly again?

Yes, but only partly. What do I mean? China has reached peak growth. I think the gowth of the GDP of China will fall below 5% in the coming 2-3 years which would easily cause social unrest and China's stock market could tank even more heavily than in recent months.

Brazil, Russia and India, however, are another story. Their stock markets, Russia's especially are grossly undervalued. India is going to be the next China, so to say. India's human capital and technological advancement potential is enormous. What is more, India's economy starts from a very low GDP per capita and with the base effect as tailwind the potential is for even double digit GDP growth in the next 5-10 years.

Russia's economy and its stockmarket, due to the fall in oil prices and the US sanctions are grossly undervalued. Oil majors like Gazprom and Lukoil trade at ridiculous Price/Earnings ratios of 5-6 as well as the other major Russian companies listed on the Moscow Stock Exchange. The Russian economy has huge base effects, starts from a lower base, and its population is highly educated and technologically advanced even by Western standards. Now, as the price of oil rises, Russia's major listed companies stand to benefit to a large extent.

Brazil is also a case in point of undervalued emerging market. Brazil has issues with political and corporate mismanagement, but the country is rich in natural resources and starts also from a low GDP per capita base. But Brazil is already a regional power in South America and sooner rather than later the major Brazilian stocks listed in Brazil and the USA will reach their full valuation potential.

Mexico, Indonesia and Nigeria are already economic growth stars which will inevitably benefit their local stock markets. Mexico, Indonesia and Nigeria benefit from their growing population and rising sophistication.

All in all, I think in the next 5 to 10 years capital will return massively to the major emerging and frontier markets.

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Kind regards,

Petar Posledovich