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Investors are fleeing emerging markets equities en masse. We
at AllianceBernstein think they need a new playbook. Great
investments can still be found across the developing world
just not in the usual places.
Macro conditions are a lot harsher than they have been over
the past decade, when Chinas manufacturing juggernaut was
in ascendance and spreading prosperity to other developing
countries. Investors can no longer treat emerging markets as a
homogeneous bunch and should be prepared for rougher
economic cross-currents ahead.
But in our view, investors shouldnt reject these
stocks outright. Emerging markets are still home to many of the
worlds fastest-growing economies and most dynamic
companies. New and exciting opportunities are surfacing every
day. As we see it, winning in the future will depend on
identifying pockets of strength even in weak economies
and catching nascent trends before they become obvious
Our first order of business, then, is to vanquish some of
the long-held misconceptions obscuring todays
emerging-markets investment picture. Here are five
You have to predict Chinese policy to win.
Wrong. The measures that pertained to a bygone China
flatlining power, cement and steel production are
signs of an economy losing steam (see chart 1). But even under
conservative forecasts, Chinas growth is still expected
to create an economy the size of
South Korea, Canada or Spain every two to three years. It
defies logic to say that China isnt incubating vast
Many of these opportunities include burgeoning industries
catering to Chinas rising consumer class (see chart 2).
Mobile phone subscriptions, Internet shopping and online gaming
are growing robustly. Sales of chewing gum and candy are brisk,
as is spending on movies, foreign travel, sportswear and
cosmetics. Starbucks coffee shops are popping up in every major
city. We think these businesses have only scratched the surface
of their growth potential.
Its all about the commodities supercycle. Not
quite. Such cycles are born every 20 to 40 years. The
most recent one peaked in 2010. Resource-dependent economies
and industries will remain hard-pressed as pricing normalizes.
But those that consume resources
India, for one are already reaping rewards.
More to the point, emerging-markets investors need to keep
their vistas wide. The industrial-manufacturing suppliers in
Mexico, Vietnam, Poland, Hungary and the Czech Republic should
continue to gain from Chinas waning status as a source
for low-cost labor and from reviving demand from
developed-markets customers. Were also keeping an eye on
developments in Argentina. Actions by the countrys
newly elected, reform-minded government to undo the damage of
the former regimes policies have already reduced
sovereign bond spreads and improved the competitiveness of its