Elsewhere, some South African consumer companies have been starting to enjoy solid growth, both domestically and in ventures elsewhere on the continent.
Kenya is home to a groundbreaking mobile money transfer system that is spreading to other countries and likely will have implications for emerging markets globally. There are many countries and companies to look at in Africa, which we are excited about in the coming year. We think it is wide open there.
Microfinance initiatives in Bangladesh, a frontier market in Asia, are justly famous in our view, and being duplicated in other parts of the emerging-markets world. A lot of money has flowed into frontier markets generally this past year, so valuations have of course risen in some markets. So, we have to watch for situations where corrections could be coming.
Russia has continued to see gradual reform as authorities seek foreign investment. Nevertheless, investors have been wary and thus Russian equity valuations overall at year-end 2013 were exceptionally low, in our view. We believe Central and South America also could continue to provide investors appealing long-term investment opportunities across a range of sectors and countries.
As consumption patterns in Brazil continue to evolve as per capita income increases, we expect the country to become a leading consumer of products (both nondurable and durable) not only produced in Brazil but also those imported from regional and global markets. Moreover, Brazil will be hosting the World Cup in 2014 and the Olympics in 2016. As a result, we have already seen and expect to continue to see the country investing significantly in infrastructure. This should help drive economic growth in the coming years as well as improve the basis for stronger sustainable growth in the long-term, in our view.
The Mexican market has been benefiting from significant investor interest recently, especially as the outlook for the US, which is Mexico’s largest trading partner, has been improving. Mexico’s competitiveness to supply the US has also significantly improved over the last few years. Many companies have continued to grow their operations in Mexico to produce high value-added products such as automobiles, aircraft and medical devices. We expect this trend to continue developing in the medium and long term. A long period of increased economic and political stability has also allowed the government to concentrate its efforts on long-awaited reforms. We expect the implementation of important reforms to continue in the near future, which should have a more immediate impact on government finances and could improve GDP growth in the long run.
Elections and potential for change
A number of major emerging markets will hold key elections in 2014, including Indonesia, South Africa, Thailand and India in the first six months of the year, and Turkey, Brazil and Nigeria later on. As the electoral cycle peaks, we believe administrations may feel more able to address barriers to long-term growth and retreat from populist measures. In these circumstances, ongoing strengths in many emerging markets, in terms of solid economic growth potential, strong public and consumer finances, rich natural resources and favorable demographic trends that have helped them over the past several years could gain new traction.
India is one country where I think we could see some positive surprises in 2014. The Bharatiya Janata Party (BJP) scored some key victories in India’s state elections in early December, and if the BJP gains control on a national scale in the spring elections, it is likely to implement some big reforms that many (including us) believe are badly needed.
Regardless of political leanings though, we are bottom-up investors; we look for companies we think can weather various political outcomes and economic conditions. I think it is important as an investor to consider India as a conglomerate of states and focus on companies located in states with a more business-friendly environment, where business is encouraged.
As long-term fundamental investors, we do not make short-term predictions for share prices, but we believe longer-term developments that look likely to gain traction in 2014 could drive solid growth potential in many emerging economies.
Mark Mobius is executive chairman at Templeton Emerging Markets Group. This article first appeared on his blog.