By Robert Stock Foreign & Colonial Emerging Markets is tipping Brazil and Mexico as the best perform...
By Robert Stock
Foreign & Colonial Emerging Markets is tipping Brazil and Mexico as the best performing countries looking forward.
While Latin America is its favoured market, it also sees opportunities in Asia and Eastern Europe - particularly Poland and Hungary. It cautions that some of the old pariahs among emerging markets remain, such as Colombia, which continues to have a massive terrorist threat.
Humphrey Carey, chief investment officer, said: "The flow of foreign investment is bringing with it a transfer of managerial and technical expertise, as well as heralding a new era of transparency in company information and accounts.
"Nowhere is this as evident as in Brazil and Mexico where developed economy companies are taking controlling stakes in companies. In Brazil, Ericsson has bought 100% of Matel Technologia, Iberdola of Spain has raised its holding in Coelba to 99% at a cost of $185m, and AT&T has acquired Netstream from Promo.
"In Mexico Wal-Mart has taken over CIFRA as the country's biggest retailer."
Carey added: "The overall environment for emerging markets over the next 12 months remains attractive, and the key driver for 2000 will be stronger and more synchronised global growth.
"Although this entails higher G7 interest rates, the bond markets have already discounted much of this process, and excessive US rate rises are not expected.
"In the long term, higher economic growth should lead to superior stock market performance.
"The emerging economies are achieving this through a combination of free market reforms, an improvement in macro-economic fundamentals and higher educational standards."
He believes the only threat to the rise of emerging markets would be a significant and unexpected slowdown of economic growth in the US, which remains the most important driver for many of the emerging markets.
Carey said that OECD growth forecasts have been upscaled since mid-1999, with the US now expected to post 3.7% growth, Europe 3.1%, Japan 1.3%, and the UK 3.2%. Last May, he said, the consensus put those figures closer to 2.4% for the US, 2.6% for Europe, 0% for Japan, and 2% for the UK.
Other factors that F&C has identified as drivers of emerging markets performance include the 14% rise in commodity prices following the Commodity Research Bureau (CRB) Price Index's 24-year low in February 1999. This has been led by oil but, Carey said, copper and steel have also improved and 2000 growth forecasts bode well for both hard and soft commodity demand.
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