Businesses need to be ready if they want to invest in emerging markets

Midlands companies should keep an eye on the attractiveness of emerging markets by doing their homework now, so they are ready to make overseas investments once the global economic situation improves.

Although many emerging market countries are experiencing sharp slowdowns in economic activity, not all of them have been equally affected by the negative outlook. This prompts a need to reappraise the relative risks of investing in those markets.

The annual PricewaterhouseCoopers EM 20 Index ranks the top 20 emerging market countries by investment attractiveness in both the manufacturing and services sectors. In the manufacturing sector, Chile has topped the table in terms of its attractiveness to potential investors, replacing Egypt, which held the top spot last year. In the services sector, Slovakia has topped the table in terms of its attractiveness to potential investors.

Countries ranked higher in the Index tend to have a lower risk premium compared with others, at a time when upward revisions of risk are common. The risk/reward economic model that calculates the Index has been revised to take into account other elements of risk beyond the sovereign debt data primarily used in the past. The Index now places greater weight on the fundamentals behind country risk such as political stability, regulatory effectiveness and the rule of law.

Sue Rissbrook,tax partner and emerging markets expert at PricewaterhouseCoopers LLP in the Midlands, says:

“Even during this global financial crisis, there are emerging markets that will appeal to Midlands companies for long term foreign investment. For those considering such investments, laying the groundwork now, will make sure they can act quickly once the economic climate improves.”

Key findings from the EM 20 Index include:

• Chile, Malaysia and Poland have made the most significant advances in the manufacturing index
• The rise of Chile and Poland is because they have comparatively high GDP per capita levels and relatively attractive risk profiles that outweigh the tendency towards higher labour costs that can lead to falling manufacturing competitiveness
• China was the only BRIC (Brazil, Russia, India and China) country to improve its ranking in the manufacturing index, moving up to 4^th from 14^th; as was the case for Chile, Malaysia and Poland, this improvement was mainly driven by the fact that its country risk premium has risen by less than that of most other emerging markets.
• Slovakia, China and India are the biggest movers in the services index

Slovakia’s rise to top the rankings is largely due to its relative political stability and its projected GDP per capital growth. The latter is an important determinant of attractiveness for businesses operating in the domestically-oriented services sector which is the focus of the services index.

Contact details
Email: Sue Rissbrook
Tel: +44 (0) 121 265 5294