Investors looking for long-term growth should look to emerging markets, says a leading bank.
But only certain countries seem ripe for investment, according to experts at Lloyds Bank Private Banking.
The bank has revealed the three key countries fund managers are keen to involve in a 10-year investment strategy – Mexico, where political uncertainty is receding, India for reform at every level and China, where industrial recovery is pushing the economy back to a strong performance.
With the International Monetary Fund predicting global growth of 4.7% this year from emerging economies, compared with 2.3% from industrialised nations, the opportunities for growth and profits look significant.
Mexico’s future looks more dependent on the North America Free Trade Agreement (NAFTA) than the infamous wall, although US President Donald Trump is expected to have a big say in both.
Mexico and India offer opportunities
Another key factor in the country’s future is the upcoming general election and how the result will influence the economy.
Markus Stadlmann, of Lloyds Bank Private Banking said: “Mexico presents a waiting game for investors. A more benign outcome together with an early end to NAFTA negotiations will reduce uncertainty and the risk premium priced into Mexican financial markets. As both fiscal and monetary policy begin to ease, domestic demand could recover later this year.”
India’s Prime Minister Narendra Modi is steering the sub-continent through a series of social and economic reforms that are improving the lot of the poorest workers.
“Overall loan growth in India has picked up meaningfully, and consumer loan growth is accelerating at a double-digit pace. Commercial vehicle sales are now accelerating robustly, and manufacturing production has picked up noticeably. In our multi-asset portfolios, we keep an overweight position in Indian equities,” said Stadlmann.
Turkey ready for a fall
Turkey also comes in for a special mention – but not for the right reasons.
“Turkey is the one to avoid. Spiralling inflation, an overheating economy and wage inflation have put stock markets in freefall,” said Stadlmann.
“Unfortunately, the government seems to be doing the opposite of what is required by overstimulating growth without considering inflation.We expect to see a big deterioration in the value of the Lira leading to a spike in the cost of servicing external debt. For investors this will have a significant knock on effect for equity values, particularly banks, and will undermine any potential return on domestic Turkish bonds.”