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April 23, 2014 - Latest:

Is China still an emerging market?

  • 15 February 2011

The term emerging markets was coined in the 1990s and is now widely used, a more poltically correct term to replace Third World and its negative implications.

It is easy to find lists of emerging market countries but hard to find a definition of what they are.

Look at those lists and you will see countries such as China, Botswana, Chile, South Africa, Hungary, Jordan, and Singapore.

Given the diversity of these economies how can we come up with a sensible definition of emerging markets?

One way would be to describe emerging markets as simply "all those countries not considered developed".

Developed here meaning essentially the major European countries plus USA, Canada, Japan, Australia and New Zealand.

Pearson Education  points to the definition used by the World Bank, which uses three variables, gross domestic product per head, growth rate and state of development to classify whether a country is an emerging market or not.

Commentators would argue that in terms of quality of life China certainly lags well behind the economies it has overtaken but using the World Bank GDP variable, its economy is more developed than emerging – falling within the 'mid to high' GDP per head category.

According to the BBC news website the International Monetary Fund estimates that GDP per head of the population is almost $34,000 in Japan, while in the People's Republic of China it is just over $7,500.

So China is not 'strictly' an emerging market. 

Philip Poole, global head of macro and investment strategy at HSBC Global Asset Management said the emerging market label would be questioned as a result of an expected structural shift in the global economy.

In other words, everything – it would seem is up for grabs and China is no exception.

It's more a case, argues Poole, of emerging sectors, rather than whole economies.

He says: "There should be winners and losers in both emerging and developed blocs and investment strategies flowing from this theme need to embrace both. It is these companies and sectors in DM that can, in my view, outperform the rest of the developed world.

"The emerging market consumption story is likely to be powerful as the world rebalances. Investors should seek out sectors and companies globally that will perform well/poorly as a result of this trend and bias the portfolio to overweight/underweight (short) accordingly."

SEE ALSO: Emerging Markets: The 'three key sources of inflationary pressure'

 

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