That phrase was said at the beginning of the last century. In the late 1980s it was still being sarcastically said. Not only for Brazil, but for many so called emerging economies.
Then sometime in the 1990s, several of Wall Street's "bright" boys got the idea that the new El Dorado for investing was "the emerging markets". < A few people, like John Train, had many years previously suggested these places for making a fortune. But by actively starting your own business, not as a passive investor. >
So what's changed? Well, evidently not that much. There's been direct foreign investment, mainly into Asia and large relative to the size of many economies. Some of this has been real estate, some multinationals looking for cheap labor, like little kids working for 50c a day.
After the 1973 oil crisis, money also flowed into the "third world" in the form of syndicated bank loans to governments. Then in the 1980s this sovereign debt mostly went bust, and Western governments did a rehearsal for the future, when they bailed out bank gov loans sub rosa. < That was the main reason Volcker's Fed started lowering interest rates. And it was the Mexican crisis that started it. >
Today it's doubtful if these same Western governments, meaning mainly the US, will be doing the same thing for the average individual. But nobody seems concerned. After all, these are the countries of the "future". However, what future remains to be seen.
Though different in the details, most emerging economies have several similarities. First, the bulk of their populations are from poor to lower income, based on Western standards. That's why their surplus trade balances are high. They're exporting cheap labor products; but can't afford that home entertainment system, which the old folks in America have used so much to lure the grand kids for a visit.
To say a significant portion of their exports is due to low or slave wages is an understatement. Most of it is.
In tandem with cheap manufacturing, goes cheap natural resource extraction - like mining, logging, etc.. Mention environmental responsibility and sustainable production, and many locals will laugh in your face. Unless, of course, you happen to be from some place like the World Bank, with money to hand out. Then they're look very grave, and say something like yes, we know it's so terrible, but the people have to be fed < with barely subsistence wages >, and besides it's all the fault of those multinationals.
Most emerging economies are usually rampant with organized criminal gangs. Some, like those in Brazil's Sao Paulo, literally run the cities and would be the envy of the Neapolitan Camorra. Coupled with this are corrupt police departments in varying degrees. In the Philippines and Mexico, you're just another shakedown. I've heard the same for Russia. In Brazil, they're too busy collecting payoffs to worry about crime, usually. But in Thailand, based on a visit by Guido many years ago, I found it relatively safe.
It never ceases to amaze me, how many "experts" in the West try to give the appearance that they really know anything about these countries. Usually their direct experience is staying in five star hotels and talking to Harvard / Oxford educated leaders.
Guido, sometimes, has actually left the walled gardens where sewage is smelled if the winds blow just right, and walked out into the streets. Though accepting their situation, many citizens are not in ecstasy. Most office girls in most Southeast Asian countries work sixty hours or more a week, six days a week. This is in private business. Guido was never allowed to talk to the gov workers. But then, his limited contact with them only showed that they had an overabundance of arrogance.
More could be mentioned about how reliable these countries accounting systems are, or the veracity of their national statistics. < Read China Plays Monopoly on this website for some indication. > Each country has varying degrees of accuracy, or inaccuracy would be a better measure.
So by all means invest in developing / emerging markets, whatever the hell that's suppose to mean, if you think that's where the growth is. Just be sure you know what you're doing. Or be sure the fund manager doing it knows what he is doing.
Guido, for one, thinks there may be better risk / reward opportunities available elsewhere.
"If you want to be successful, it's just this simple. Know what you are doing. Love what you are doing. And believe in what you are doing." - Will Rogers
< As always, this article is only for information purposes. It is not meant as advice or otherwise a recommendation. >
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