Don’t freak out at the phrase “new world order:” this isn’t about conspiracy. The fact is that 2011 is likely to be the year that China most definitively transitions to first place as the world’s foremost economic power. And with China’s economic ascendancy, so follows the economic rise of China’s key trading partners, many of which are emerging markets.
When the emerging markets become more developed markets, we’ll need some new emerging markets to take their place. I think this is going to happen much faster than many of us have been expecting.
What are the Frontier Markets?
Remember the “BRIC” acryonym? It used to represent the darling emerging market economies. About 4-5 years ago. Now, post-crisis, you don’t see “BRIC” come up in media discourse as much anymore. That’s at least largely due to the fact that China is clearly no longer an “emerging” economy – it’s pretty much a full economy in its own right, even as it continues to grow. It makes more cars than anyone else, and it has control of more gold than anyone else. That’s not exactly a precise way to measure “having arrived,” but I think we all see it pretty clearly.
Then there’s Brazil, a close second. Maybe Brazil is still “emerging,” but you can no longer call it fledgling by any means. Brazil is rocking the southern hemisphere. It has long since left the “ground floor.”
So who are the new emerging markets? You need to look to a new term, actually: frontier markets.
Frontier market economies are those that are clearly on the edge of “emerging,” but haven’t really entered popular financial discourse yet. Places in Africa and the Middle East are clearly part of this new investment frontier.
The Youngest Emerging Markets
These are the youngest emerging markets, and they provide good alternatives to the more well known and established emerging markets. Eastern Europe, for example, is now probably square within the standard “emerging market” model. We know about Ukraine’s bread basket self-sufficiency, but Poland is becoming increasingly strong as an economy in its own right.
The youngest emerging markets are places like Pakistan, Georgia, the United Arab Emirates, Kenya, and the Congo. Tons of natural resources make them likely targets for economic exploitation, and so far there are barely any ETFs with which to exploit the exploitation (or “extraction,” if you prefer).
As more and more capital is created at the hands of the US Fed, and it goes sloshing around the world in search of profit opportunity, it will look for places to co-opt and extract profits from. In the form of venture capital, private equity vehicles and mergers and acquisitions, the new money will find new opportunities, and that means that we’ll see more market creation and more ETFs to sell a piece of those markets to the middle class investor.
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