Last updated August 14th, 2021.

The term “emerging market” brings to mind a country which is growing quicker than most others.

Emerging markets are typically going through a phase rapid urbanization, rising foreign investment, and improved infrastructure quality.

All these things help emerging markets, quite frankly, emerge.

Not all emerging markets enjoy a robust economy though. In fact, some are even seeing weaker growth than developed nations such as Taiwan and Singapore.

Here are 3 emerging markets you should probably avoid. They’re all seeing a period of tepid GDP growth and underwhelming prospects.

For the time being, most investors should pass on these places – whether we’re talking about buying stocks, real estate, or private equity.

Granted, the world is always changing. But currently, these 3 emerging markets are not truly emerging at all.

 

Turkey

Turkey has been going through a rough several years. Once the darling of European investors, foreign capital recently began fleeing Turkey following political uncertainty and the lira’s dramatic fall.

Presidential elections back in 2017 helped cement Erdogan’s grip on power, and marked the beginning of Turkey’s problems. Since then, the lira lost more than half its value against the US dollar.

While the nation’s GDP, in terms of lira, rose by insignificant numbers over the past few years (0.9% in 2019 and 1.6% in 2020), the Turkish economy’s nominal value fell substantially from last decade’s highs of US$957 billion to below $700 billion in 2021.

Likewise, foreign business interests were keeping away from Turkey even before 2020. Regional security risks, along with a renewed war with Syria and the Kurds, were putting investors on edge at the time.

The lira’s recent crash absolutely doesn’t help matters, because Turkey was in poor shape to begin with.

Similar to many other emerging markets, Turkey normally relies on tourism. Yet this sector is unstable lately for obvious reasons.

It’s now up to Erdogan to improve the Turkish economy. The problem? There’s not much more he can do. Disappointing growth figures are set to continue in 2022 and beyond.

 

USD=TRY-2020

A fifteen-year chart of the Turkish lira compared to the US dollar. The lira lost around seven times its value since 2010. Remember: when you invest in a country, you also invest in its currency.

 

Thailand

The military took control of Thailand back in 2013 and economic growth slowed steadily since then. GDP contracted by 6.1% in 2020, marking the worst decline since the Asian Financial Crisis last century.

Not very impressive for an “emerging market”, to put it lightly.

Foreign businesses, while not exactly scared off, are reluctant to pledge more capital. Political uncertainty and natural disasters are worrying investors.

The Thai government’s relatively strict control over the internet, combined with legal feuds targeting Facebook and Google, succeeded in scaring off global tech investors too.

In the most basic sense, the problem is that Thailand must be more competitive than it is now. Upkeep and labor costs in countries such as Cambodia and Vietnam are lower, while their manufacturing quality remains at a comparable level.

Meanwhile, nearby Singapore, Malaysia, and even the Philippines boast a higher-skilled workforce.

Thailand simply can’t offer foreign investors anything that their neighbors don’t have already… while sometimes doing so cheaper and better.

Right now, the only reason a manufacturer should be here is if they’re doing business in a very specific sector like auto or semiconductor production. Thailand enjoys a competitive advantage in those two industries.

Perhaps most importantly, an aging population will continue pressuring Thailand’s economy in the future. Predictions show the number of working age Thais will decrease by 11% by 2040 – the fastest rate in ASEAN.

Thailand should step up its game quickly if they don’t want fall behind. Currently, they run a high risk of growing old before becoming a wealthy society.

 

Bangkok-Condo-Economy

Property values in Thailand have doubled, while its currency remained stable over the previous decade. Nonetheless, the nation’s broader economy is flatlining and Thai investment valuations aren’t as attractive as they once were.

 

Brazil

We’re going to step out of the Asian continent to look at perhaps the weakest emerging market in the world.

Rather than merely growing at a slow pace, Brazil is now struggling to avoid a deeper recession and declining currency.

Brazilian GDP rose at a rate of 1.1% in 2019 and dropped by 4.1% in 2020. Furthermore, they grew by under 2% every year since 2010.

This tepid, if not negative growth, means that Brazil ranks as one of the worst performing emerging markets throughout the last decade.

Political issues are a main cause of Brazil’s economic malaise (do you see a trend?) over the past few years. Every level of government, from the presidency to congress, has been marred by corruption scandals lately.

South America, generally speaking, is going through hard times. Practically everywhere from Mexico to Chile is watching their economy grind to a halt, often alongside mass protests and public unrest.

Meanwhile, the value of the Brazilian real and other currencies across the region have suffered longstanding declines.

It’s sad to say, but despite losing about half its value during the previous decade, the Brazilian real is actually one of South America’s best currencies. The Argentine peso fell by over 2000% within the same time period!

This is yet another reason why Asia is a great place to invest. Emerging markets like the Philippines and Vietnam are growing quickly and possess strong economic fundamentals.

Currencies of emerging markets in Asia are also generally safer, while governments are  politically stable in comparison to South America.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. You can download his free investment guide by clicking here.

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