Two emerging markets to consider that you may not have thought of

Your mission, should you choose to accept it, is to write about two exciting emerging markets that few people will have considered. That was the challenge set me, and here is my answer.

Article updated: 29 January 2019 9:00am Author: Michael Baxter

I’ll come straight to the point. My chosen two regions are Chile and Romania.

Chile

The point to bear in mind is that it is questionable whether Chile is in fact an emerging market. It is considered a high income country, according to the World Bank it has the highest GDP per capita in Latin America; although by European standards that is not high, this is a tad more than Poland a little less than Greece.

It is projected to grow at 2.9 per cent this year, from 1.5 per cent in 2017. Inflation is modest, public borrowing to GDP is low.

The biggest weakness with the Chilean economy is its reliance on copper. When the copper price is high, the economy booms, when copper is cheap, the economy slows.

So far, okay. Nothing special. If you like your Latin American countries stable, then Chile ticks that box; but that hardly screams exciting.

Chile becomes more interesting when you consider it is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or TPP 11. This is the successor to the Trans Pacific Partnership, which went defunct after the US pulled out.

Chile along with Peru and Mexico is one of three Latin America signatories to the agreement. There are 11 signatories in total which account for 13.4 per cent of global GDP.

Other signatories include Japan, Australia, Canada, Singapore and Malaysia.

Bizarrely, the UK has expressed an interest of being a member. I say bizarrely, because the last time I looked, it seemed to me that Britain was nowhere near the Pacific, maybe it is my eyesight.

It is early days yet, but TPP 11 has the potential to provide a massive boost to the economies of its members.

But that is not the reason why I am a Chile fan.

What really makes Chile interesting is that it is home to the largest source of lithium in the World. I should point out that the lithium mining region also overlaps Argentina and Bolivia. No respecter of international borders, is Lithium. But the biggest deposits seem to be in Chile.

But combine its Lithium deposits with all the other factors I described above — it seems to me that Chile is one of the more ‘interesting’ emerging markets in the world.

Romania

Romania is one of the fastest growing economies in Europe. The IMF forecast growth of 3.4 per cent for this year, after growing four per cent in 2018 and 6.9 per cent in 2017.

But that is not why I feel positive about this country.

To understand why, we need to go back to 1959; that was the year of the first ever Maths Olympics held, yes you guessed it, in Romania.

Maybe, because of the historical Soviet influence, this is a country that has long put an emphasis on science education. It has not been one of the top countries in the Maths Olympics for a while now, but the emphasis in the education system is clear.

I am not sure it's science education is why, but for whatever reason, Romania has an incredibly exciting tech start-up scene.

Tech Crunch coined the phrase: the Silicon Valley of Transylvania.

Romania’s tech scene started to turn heads at the beginning of 2017 when Fitbit bought Romania’s Vector Watch. At that time, Eric Friedman, Fitbit’s co-founder said: “What I find most impressive and reassuring is the active number of young tech entrepreneurs, kids in their early 20s, who have the imagination and power to challenge a global start-up ecosystem. The evolution of the tech start-up scene in Romania is highly positive. New investment funds and business angels support more and more tech-based start-ups.”

Well, look at the Romanian scene today, and it is even more exciting. UiPath, the robotics process automation company that has set itself the target of creating a robot on every desk, and claims to be the fastest growing enterprise supplier in history, tops the list

Other interesting companies include Elefant, Cyber Swarms, Miababy, Doclandia, Fashion Up and The Fast Order.

Of course, much of the tech scene consists of companies that have not yet made it to the stock market, but today, I am more interested in the knock-on effect on the Romanian economy.

Today, I read, IT accounts for six per cent of Romanian GDP, but this is expected to increase to ten per cent.

Romania is not unique among European emerging markets in the tech space: Poland, Estonia, Latvia and Portugal (assuming you can call Portugal an emerging market) all have buoyant tech scenes.

But it is the list of Romania techs that standout to me.

How to invest

There are no funds I am aware of that specifically invest in either Chile or Romania — more’s the pity. Funds that invest in Latin America include: Aberdeen Latin America and Blackrock Latin America.

As for emerging Europe, interesting funds include: Baring Emerging Europe, and Invesco Emerging Europe

Wider point

There is one more point I would like to make. What is unusual about the so called fourth industrial revolution — that’s technologies such AI, Virtual and Augmented Reality, the Internet of Things, 3D Printing and 5G — is that barriers to entry are quite low. This creates an outstanding opportunity for emerging markets blessed with a pool of skilled labour in technology related areas.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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