In my previous commentary, I discussed the ongoing financial mess in the eurozone and its negative impact on the gross domestic product (GDP) growth of the 17 countries in the region. Yet, with the eurozone in a recession that could last another few quarters, the negative impact on the global economy should also be considered when you are looking at foreign investing opportunities.
The current stalling in China could be linked directly, in part, to the situation in the eurozone, and I expect this will continue to be the case as long as the eurozone struggles.
At the same time, the areas most at risk from the eurozone crisis will be the emerging regions in Eastern Europe; they will be much more at risk than Asia simply due to the proximity of the markets.
Russia, the largest economy in Eastern Europe, is estimated by the World Bank to report GDP growth of 3.5% in 2012, down from GDP growth of 4.3% in 2011. (Source: “World Bank Keeps Russia’s GDP Forecast at 3.6% in 2013,” RIA Novosti, January 16, 2013.) However, the report is estimating that the country’s GDP growth will slowly rally to 3.9% in 2014 and 3.8% in 2015, which is still below the five-percent-plus readings from 2003 to 2007. (Source: “Data,” The World Bank web site, last accessed February 20, 2013.) Of course, the actual rate of the recovery will largely depend on whether the eurozone can recover from its mess.
Poland, the second-largest economy in Eastern Europe, is really struggling. The negative impact from the eurozone has wreaked havoc on the Polish economy and its GDP growth. The country’s economy is estimated to expand at a mere 1.5% in 2013, down from the previous estimate of 2.2%, according to the European Bank for Reconstruction and Development. (Source: “EBRD cuts Poland’s 2013 growth forecast,” Polskie Radio web site, January 21, 2013, last accessed February 20, 2013.)
Other smaller economies in Eastern Europe are also seeing contraction in the economy due to the eurozone, and this will not change until the eurozone strengthens.
In my view, the better plays for emerging growth will likely be Asia and Latin America; albeit, should China remain flat, the impact on regions in Asia could be significant.
The key growth areas in Asia are known as the “Little Tigers,” comprising Hong Kong, Singapore, South Korea, and Taiwan. But there are concerns here.
Impacted by the slowing demand in Europe, South Korea, the fourth-largest economy in Asia, is expected to see GDP growth of a mere 2.1% in 2012 and three percent in 2013; these numbers are far from the GDP growth of 6.1% in 2010, according to the country’s finance ministry. (Source: Kim, C. and Seo, E., “Korea Cuts 2013 Growth Estimate as European Crisis Linger,” Bloomberg, December 27, 2012, last accessed February 20, 2013.)
In Latin America, GDP growth is estimated to improve to 3.5% in 2013, versus 2.5% in 2012, according to an S&P report. (Source: TEXT – S&P report: Latin America GDP growth will pick up slightly in 2013,” Reuters, January 2, 2013, last accessed February 20, 2013.)
The key player in Latin America is Brazil. The Latin powerhouse is estimated to grow at 3.1% in 2013, down from the previous estimates calling for over four percent GDP growth (Source: “Economists trim forecasts for Brazil 2013 GDP and inflation,” Reuters, February 18, 2013.) Brazil’s GDP growth is estimated to rebound to 3.7% in 2014, as the country gets set to host the FIFA World Cup in 2014 and the summer Olympics in 2016.
Longer-term, I like China, but there could be trouble if the country stalls amid the eurozone crisis; there’s also still the risk of fraud with Chinese stocks.
I would avoid Europe and the eurozone for now.
For foreign exposure, Latin America looks like it could be the next global hotspot for making money, but I’d stick with Chile, Mexico, and Brazil.