Profile and potential
Published: 13 January 2010
HSBC has established branches even in countries that have been considered closed, restricted or highly centralised. Working actively in these markets, the Bank has been a respected institution in these markets for many years.
Over the years, emerging markets have increasingly outstripped developed economies in terms of growth and other key economic indicators.
| % Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009f | 2010f | 2011f |
|---|---|---|---|---|---|---|---|---|---|---|
| World | 3.0 | 5.3 | 10.8 | 8.3 | 10.1 | 8.3 | 4.0 | -13.1 | 5.5 | 6.4 |
| Developed Emerging |
1.4 7.4 |
1.7 14.1 |
7.6 18.0 |
5.5 14.0 |
8.1 13.9 |
5.6 13.1 |
1.7 7.7 |
-13.7 -12.3 |
4.9 6.4 |
5.1 8.3 |
Source: 'The tipping point', HSBC Global Research Macro Global Economics Q4 2009
| % Year | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009f | 2010f | 2011f |
|---|---|---|---|---|---|---|---|---|---|---|
| World | 2.7 | 4.6 | 6.3 | 5.3 | 6.3 | 5.8 | 1.5 | -7.2 | 6.0 | 5.5 |
| Developed Emerging |
-0.4 6.9 |
1.0 9.2 |
2.6 10.9 |
1.9 9.2 |
2.9 10.2 |
2.2 10.1 |
-2.2 5.8 |
-13.2 -0.1 |
3.4 9.1 |
3.2 8.1 |
Source: 'The tipping point', HSBC Global Research Macro Global Economics Q4 2009
HSBC's investment of time, capital and resources in emerging markets has been well-rewarded as the Bank now enjoys rapid growth in these economies.
Risks and rewards
Many investors look to diversify their portfolios across different economies, thereby distributing risk, while others seek out new, more affordable opportunities that may not be available in the leading industrialised nations.
In today's global economy, emerging markets have become a staple of many investor portfolios because of the high future rewards associated with being the first to put money into companies and economies with good growth potential. And, as recent economic indicators have shown, it is possible for emerging markets to accelerate their growth while more developed economies slow down.
HSBC Group Chairman Stephen Green was co-chairman of the Capital Markets Consultative Group of the International Monetary Fund (IMF) which authored the 2003 Foreign Direct Investment in Emerging Market Countries report. The group observed that foreign direct investment (FDI) flows started streaming towards emerging markets in the 1990s. These were made possible primarily by mergers and acquisitions, particularly of state-owned assets. Since the writing of the IMF report, net foreign investments in the emerging markets have surged upwards.
Aside from good growth prospects, productivity-adjusted labour costs (labour efficiency rather than the cost of labour per se), physical and personal security, and good governance are among the country characteristics investors examine when considering investment in an emerging market.
The global financial crisis has only served to highlight the advantages and the promise of emerging markets. Local financial institutions in many of these economies were relatively unscathed by the financial meltdown that paralysed the West. HSBC's Emerging Markets Index reports that manufacturing exports show the largest gain in emerging markets for nearly five years. HSBC Chief Economist Stephen King noted, "Emerging nations are going from strength to strength and a global recovery is likely to be emerging markets-led."
A battle of ills
In the developed world, financial implosion is the key risk... whereas in the emerging world, inflation is the major challenge. Policymakers are facing a long and difficult struggle.
After Goldilocks, is Humpty going to fall?
Once upon a time, markets priced in the belief that global imbalances would gradually unwind and everyone would live happily ever after. But the tale has changed. The bears have finally caught up with Goldilocks (rest her soul) and a growing probability of US (and maybe even global) recession has been added to the mix.
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