Emerging markets offer potential, but choose wisely
Jeremy Stewart is head of wealth management and private banking at Danske Bank
Some volatility has recently returned to the global financial markets on the back of rising oil prices and increased rates and yields, particularly in Europe. This has caused some spillover to emerging markets, where for example, the Central and Eastern European currencies have softened a bit. That said, it has hardly been dramatic.
On the back of the ECB's quantitative easing and the acceleration in the recovery in the eurozone, the macroeconomic outlook for Central and Eastern Europe has improved. This will give support to countries such as Poland and Hungary. With deflation across the region, it is not expected that European central banks will allow significant appreciation of their currencies.
The situation in emerging Asia and Latin America is somewhat different. The recent recovery in commodity prices and particularly in oil prices is giving some respite to commodity exporting economies such as Brazil and Mexico. However, the outlook for rate hikes from the Federal Reserve and renewed US dollar strength could put some pressure on both the emerging Asian and Latin American economies in the medium term.
Longer term trends mean that there are attractive opportunities in emerging markets. This extends to Northern Ireland businesses, who can seek to take advantage of growing demand in what are deemed to be attractive 'emerging markets'.
However 'emerging markets' include a wide range of countries ranging from Korea to Kazakhstan. Any Northern Ireland business expanding into emerging markets would do well to be discerning in the countries that they select, taking account of political stability and business and legal infrastructure as well as the relative attractiveness of the market opportunity. Careful research is critical and businesses should take advantage of the extensive support available from various Northern Ireland agencies.
For private investors the same holds true.
Longer term investors can take advantage of what are very clear global trends, but should also take account of the wider political and business environment and diversify based on careful research.
Be prepared for volatility but take a long term view.