China vs Myanmar! Battle of the Emerging Markets

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• published: 29 Dec 2016
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To join the Elite Investor Club, head over to http://eliteinvestorclub.com/ It was back in two thousand and one that Goldman Sachs coined the term BRIC for the emerging markets of Brazil, Russia, India and China. The Global Investment bank predicted Brazil and Russia would become the dominant global suppliers of raw materials while India and China would become the similarly dominant suppliers of goods and services. China had already demonstrated huge potential in the early nineteen nineties when its annual growth hit a still unbeaten fifteen point four percent and after a brief dip into single figures around the millennium, growth figures continued to march upwards until the global recession hit. One of the key attributes that makes China so popular from an investors point of view is its consistent growth which has been fuelled by government funded “mega” infrastructure projects, a booming property market, exponential manufacturing output and raw commodity exports. Instead of buying Belinda Carlisle and Phil Collins LPs back in nineteen eighty nine, if you’d have invested your savings into China, you would have received annual average growth of almost ten percent per year. By the powers of compound growth, a ten grand investment back then would have netted you over one hundred and thirty thousand pounds if you sold up today. And whilst there’s been a lot of talk in recent years that China’s boom is now over, growth still sits above six point five percent per year. A figure that any western country would give their right arm for. But as with any emerging economy there’s always a downside. China’s economy has been built on investment and that means that many companies and even state owned enterprises are overexposed to debt. The country’s debt has ballooned to almost two hundred and fifty per cent of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth over the last few years, unleashing a massive, debt-fuelled spending binge. For Chinese banks that have loaned to fellow compatriots, the quality of debt is also a problem. It’s estimated that as much as twenty percent of it could be made up of non-performing loans. If all of that debt were to be officially written off, a western style two thousand and eight style banking crisis could be on the cards. China’s economy then is like its food. Both sweet and sour. The big question for China now is can it grow its way out of debt through the adoption of new technologies and emerging industries like renewables or will the weight of its debt turn it into a giant economic sinking ship? China is not the only Asian economy to be marching forward. Myanmar, its little known neighbour with a fledgling economy, is on target to become the fastest growing economy in the world in percentage terms for twenty sixteen. Formerly known as Burma, Myanmar is a true emerging market in every sense. Under military rule for the last half of the 20th century and the early part of this millennium, the country recently held its first free and open elections. With a smooth transition of power and a progressive government now in place, the US has made the decision to start lifting economic sanctions on the country and Myanmar has announced itself open for business. In two thousand and fifteen the country opened its own stock market even though it didn’t have any companies ready for listing at the time. Today they have just three on the books and that gives you an indication of how immature the country’s economy still is. It’s not just the size of the economy which makes it immature, it’s the legal and regulatory side of business and finance which is only just beginning to be laid out. Anyone entering Myanmar to set up shop or invest in local business needs to be comfortable with the highest levels of risk and many investors are choosing to hold fire and wait for more regulations to be put in place before they take the plunge. It’s clear though that the government is moving in the right direction and understands the need for foreign investment to fund not just local and national businesses, but major infrastructure projects which are essential if Myanmar is to build on its early stage growth. If you’re the kind of person that’s always looking to get in at the very beginning of the next big thing. Myanmar, with its fledgling government, economy and infrastructure might just be for you. But with so many unknowns and the pace of progress yet to be seen, if you think you’re in for an easy ride on this one, be very careful out there.