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Are MINTs the investment opportunity of the next decade?

4th May 2011 Print

Investors in the BRIC group of countries have enjoyed excellent returns over the last ten years.  Whilst outright replacements for the BRICs are impossible to find, there are a number of genuine emerging market opportunities a layer down from the BRICs that are not as well appreciated but have similar long-term investment potential.  Fidelity International takes a closer look at four of these countries; Mexico, Indonesia, Nigeria and Turkey.

Indonesia:  Of all the other countries, Indonesia is the most similar to the BRICs, owing to its very large population of 245 million (bigger than Brazil or Russia).  In December 2010, the government articulated an economic vision in which Indonesia would grow to become one of the world's 10 largest economies by 2025.  If it succeeds in this objective, investing in Indonesian assets early on could prove to be very rewarding.

Teera Chanpongsang, Manager of Fidelity's Emerging Asia fund, comments: "The long-term outlook for countries such as Indonesia and the Philippines is supported by a powerful mix of favourable demographic factors, including quite large populations that are dominated by young people whose disposable incomes are rising."

Turkey: The Turkish economy has bounced back very strongly since the global downturn, growing by an estimated 8.1% in 2010. The country is now reaping the benefits of the reforms and policies it pursued after its own crisis of 2001: its banking system survived the global crisis in relatively good condition and the government's budgetary and public debt position is significantly better than many countries in the Euro-zone.

An important driver of structural reforms has been Turkey's EU accession process which has paved the way for comprehensive changes, including the increasing role of the private sector in the Turkish economy, the enhanced efficiency and resiliency of the financial sector and a more solid social security system.

Nick Price, Manager of Fidelity's Emerging Europe, Middle East and Africa (EMEA) fund, comments:  "In recent years, Turkey has made good progress in terms of implementing reforms and improving its infrastructure whilst retaining its fiscal discipline. GDP per capita has more than doubled in the last decade while the country is set to benefit from favourable demographics, with around a quarter of the country's 70m plus population under the age of 15."

Nigeria: Africa remains off radar for many Western investors as a result of the negative perception of the continent - shaped by images of poverty, famine and conflict. The gap between perception and the reality on the ground leads to some very exciting investment opportunities. Nigeria is arguably at the forefront, home to Africa's largest population and a country richly endowed with natural resources, which is helping to boost investment trade flows and economic growth.

Nick Price says: "While more fashionable emerging markets have been getting a lot of attention, the real long-term growth stories that investors should be getting excited about are in the frontier markets. Countries such as Nigeria offer good diversification and low correlation to other more established emerging markets. I find some of the most interesting opportunities in the consumer-related sectors. The banks in Nigeria are now highly regulated, well capitalised and set to benefit from the penetration tailwind that exists with one of the lowest levels of retail credit penetration in emerging markets."

Investing in frontier markets is not without its risks. Nigeria is still a nascent equity market and relatively illiquid. From a political perspective, the country has experienced periods of social unrest in the past. However, the outcome of the recent elections has been positive for the continuation of reforms put in place by re-elected president Mr. Goodluck Jonathan.

Mexico: Both a potential strength and weakness of the country is its very high economic exposure to the dominant US economy. Around 80% of Mexico's exports go to the US, and as well receiving substantial amounts of US investment, Mexico also benefits from the remittances of the large Mexican-origin community that resides in the US.

Alex Duffy, Co-Manager of Fidelity's Latin America fund, comments: "Mexican economic performance tends to be quite well correlated with that of the US, largely due to its dominance as a manufacturing hub for its northerly neighbour. Five years ago, the labour cost of a Mexican worker was 260 percent more expensive than a Chinese worker. That premium has steadily eroded over time and after a lull in the early part of this century, Mexican goods are once again taking an increasingly larger percentage of imports into the US. We have a fairly positive outlook on the US recovery, so Mexico stands to benefit as a result."

These countries merely give a flavour of a range of high-growth emerging markets but there are many others such as; Vietnam, Philippines, South Africa, Malaysia and Colombia that could also provide attractive long term investment opportunities.

Of course, for all emerging markets, investors need to consider the associated risk factors. Recent instability in the Middle East and North Africa has highlighted the higher susceptibility to political risk, in particular.  The task therefore is to find those countries and assets within these that offer sufficiently high returns that adequately compensate for the level of risk being taken. 

Finding the next group of countries that can compare with BRICs in terms of scale is a virtually impossible task but MINTs may just have the potential to be as rewarding for investors over the next ten years as BRICs have been in the past ten.