Emerging Markets overview

28 March 2008

Like all good financial stories the appeal of emerging markets starts with the numbers.

Here are some of them:

over 35% of the world’s population lives in China and India alone
86% of the world’s population live in all of the emerging markets combined*
the emerging markets hold 70% of the world’s foreign reserves and 52% of GDP yet make up only 9% of world market equity capitalisation.*

The rapid growth of the middle class in the core emerging markets adds a further dimension to these numbers. The expansion of wealth amongst this important demographic diversifies the story about emerging markets away from the more obvious early-stage growth areas of manufacturing and commodities into one that is also about the rise of consumer goods and everything that goes with this, such as retailing, logistics, and advertising. Rapid urbanisation and a young, growing workforce reinforce this trend.

To complete the synopsis of this story we need to take into account that businesses in the emerging markets can access the same quality of information, business technologies and management expertise that we do. As a result they are less reliant on the western world for critical inputs. Increasing domestic demand and growing trade between emerging markets further increases their independence from western markets.

What this points to is that the emerging markets should be well positioned to continue their superior growth relative to developed markets even if the western world goes into recession.

This all adds up to one thing: good prospects for attractive returns.

* BlackRock Merrill Lynch Investment Managers December 2007