Investing in Emerging Markets: Capitalizing on the Changing Global Export Landscape

When considering investing in emerging markets, explore opportunities in the rise of emerging economies, exports, and shifting trade patterns

BRICS countries/Deposit Photos

Global trade has undergone a remarkable transformation over the past four decades, with its share in the global economy increasing from 36% to 57% by 2022. This surge in international trade has created opportunities for investing in emerging markets, which have become pivotal players in the ever-changing global trade landscape. Notably, China experienced a remarkable ascent, transitioning from a mid-size player to the world’s largest exporter within a mere two decades. Alongside China, other emerging economies, like Mexico, exhibited impressive growth, propelling them to the top echelons of global exporters.

In fact, Mexico is now among the top 10 exporters and a number of smaller emerging economies are growing their exports rapidly.

China still Dominates Global Exports

Although it has slowed lately, China remains the largest exporting country in the world. It delivered goods worth $3.6 trillion to global customers in 2022, or 16% of all global exports. This was roughly the same value of exports from the second and third-ranked U.S. and Germany combined.

Fellow Asian countries received almost half of Chinese exports while European and North American customers both imported 20% of the total. The largest single-country customers for Chinese goods are the U.S. (16%), Japan (5%), Germany (3%), Netherlands (3%), South Korea (5%), Vietnam (4%), and India (3%).

Chinese exports grew rapidly in the years after its entry into the World Trade Organization in 2001. For the decade after 2001, exports increased by 20% per year and contributed almost 30% of the Chinese economy for that decade.

However, growth in Chinese exports has slowed down over the past decade to around 5% per year. Also, when expressed as a portion of GDP, the importance of exports began dropping — averaging 20% over the past decade, down from over 30% in the previous decade.

Reasons for the slowdown in Chinese exports include the large established base, which makes incremental growth more difficult, frayed relationships with its largest export customer — the U.S. — and the COVID-19 pandemic, which resulted in large-scale lockdowns in the country. Notably, all this encouraged some large global buyers of Chinese products to find suppliers in different countries.

Countries that are benefiting from those buyers aiming to diversify their suppliers include Mexico, Vietnam, South Korea, India, Thailand, Malaysia, the Philippines, Chile and Indonesia.

The U.S. is the largest importer of goods in the world with an import bill of $3.2 trillion in 2022. Since 2015, U.S. imports grew by 42%. However, imports from China increased by only 11%. On the other hand, the U.S.’s imports from Vietnam jumped by 235%, Taiwan by 124%, Thailand by 105% and India by 91%.

Mexico advanced gradually over the past two decades to become the 10th-largest global exporter. That was propelled by the U.S.-Mexico-Canada Agreement (USMCA) and its predecessor, the 25-year-old NAFTA agreement. The USMCA, signed in July 2020 between the U.S., Mexico, and Canada, allows for low or no tariffs on many traded goods, subject to certain conditions and exclusions.

In addition, labour costs in Mexico are now on par or lower than in China, and transportation costs from Mexico to the U.S. are lower. According to Mexico’s Economy Minister, more than 400 North American companies have indicated that they plan to carry out a relocation process from countries in Asia to Mexico.

Other Asian Countries are Picking up the Slack

Vietnam is a mid-sized economy, with a GDP that is the 36th largest in the world. Exports are the equivalent of 93% of the economy, and have grown at 20% per year for the past decade. The main exports include broadcasting equipment, telephones, integrated circuits, office machine parts, and textiles. India is another major beneficiary of shifting U.S. trade preferences. Total exports to the U.S. are up by almost 100% since 2015 with the main imports being diamonds, pharmaceutical products, and mobile phones and equipment.

As the global trade landscape continues to evolve, investing in emerging markets presents investment opportunities for investors. While China remains a dominant force in exports, its recent slowdown and the shifting dynamics of global supply chains have opened doors for countries like Mexico, Vietnam, India, and others to capitalize on the changing trade patterns.

Meanwhile, use our three-part Successful Investor approach for all of your investments:

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

What are your thoughts on investing in emerging markets amidst the changing landscape of global trade?

Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books. This article was published on Aug. 28, 2023 and is republished on the Hub with permission.

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