Government reforms have proved a catalyst for additional growth among emerging market investment strategies. India, Mexico, Indonesia and China have all turned to reforms to invigorate domestic demand and eliminate inefficiencies.
Two firms, Emerging Global Advisors (EGA), an emerging markets asset manager founded in 2008, and S&P Capital IQ have both recently expanded on two countries where they see opportunity: India and China.
Emerging Global Advisors expects countries that are actively undertaking reform — China, India, Indonesia, Mexico and Philippines — to lead growth and competitiveness in emerging and frontier markets.
Nicholas Smithie, chief investment strategist for EGA, pointed to data during a recent press event that showed reformers performed betterduring 2014. The Fab Five, aka the average return of the MSCI country indexes for China, India, Indonesia, Mexico and Philippines, had total return of 15.3%, while the MSCI EM Index had total return of -2.1%.
“The reform theme may continue to do well in 2015,” according to Smithie’s presentation. Smythie is responsible for EGA’s emerging market investment strategy.
In Indonesia, President Jokowi kept his election pledge and hiked fuel prices.
“This reduces the fiscal deficit and frees up funds for investment in infrastructure, which is positive for growth and currency strength,” according to Smithie.
Moreover, in India, similar things are happening. Smithie says Prime Minister Narendra Modi has done the same as Indonesia, which, according to him, indicates “the ability and willingness to undertake necessary economic reforms.”
And, according to S&P Capital IQ, the investor confidence in India is centered on its reform agenda.
John Krey, the international cross-asset investment analyst for S&P Capital IQ, believes the reform-minded policy climate under Modi’s Bharatiya Janata Party-led regime is likely to remain in place.
While there is currently a slow pace of deregulation and adoption of economic reforms, Krey said in a recent webinar that the market seems confident Modi will, in the near future, take the necessary steps to see reforms through fruition.