Macro Report: 2014′s Fastest Growing Economies

ETF Database

2013 was a year emerging market equity investors would rather forget, as the impact of the global economic slowdown weighed heavily on these once rapidly growing economies. The emerging economies hit hardest were once the most promising investments, namely Brazil, Russia, India, and China – the BRIC nations. Despite the bump in the road, however, investors should not completely write off these investments, as over the years, this corner of the market has typically exhibited some of the most lucrative returns and highest growth potentials [see ETF Winners & Losers from the Ben Bernanke Era].

According to the International Monetary Fund’s (IMF) most recent World Economic Outlook, developing economies will likely struggle to make up lost ground this year, though several countries are poised to top 2013′s GDP growth rates.

A Closer Look at Emerging Markets in 2014

IMF data shows that emerging Asian and Sub-Sahara African countries will see the most growth in 2014. Latin America and developing Europe, however, are both forecasted to have annual real GDP growth rates of roughly 3.0%:

Further breaking down the space, IMF’s outlook highlights several individual economies that are expected to top 2013′s GDP growth rates. Click on each country below to see a list of equity ETFs that include the selected country among the 10 largest single country allocations [see 4 Contrarian ETF Plays for 2014]:

Country 2013 GDP Projection 2014 GDP Projection
The Democratic Republic of the Congo 6.2% 10.5%
Mozambique 7.0% 8.5%
Nigeria 6.2% 7.4%
Mali 4.8% 7.4%
Tanzania 7.0% 7.2%
Zambia 6.0% 6.5%
Bangladesh 5.8% 6.0%
Guyana 5.3% 5.8%
Peru 5.4% 5.7%
Indonesia 5.3% 5.5%
Vietnam 5.3% 5.4%

Investors should note that there are significant risks associated with the countries featured above. The IMF cautions, “China and a growing number of emerging market economies are coming off cyclical peaks. Their growth rates are projected to remain much above those of the advanced economies but below the elevated levels seen in recent years, for both cyclical and structural reasons.” Potential headwinds for emerging economies include changing monetary policies across the globe, slowing capital inflows, currency fluctuations, as well as volatile equity prices.

Advanced Economies Heat Up

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Though emerging market equities typically offer greater returns, investors should also consider investing in foreign equities from developed economies. These securities also offer great diversification benefits, and are significantly less risky then their emerging counterparts [see ETF Winners & Losers from the Ben Bernanke Era].

Recently, economists have become more bullish on developed markets, including the U.S, the eurozone, Japan, and the United Kingdom. Analysts cite the combination of unusually low interest rates and accelerating earnings growth as the primary reasons why developed markets will likely continue to perform well in the coming years. According to the IMF, advanced economies are expected to expand 2.0% in 2014, a significant uptick from the estimated 2013 figure of 1.2%.

For those not willing to stomach the risk associated with emerging market equities, we highlight several developed economies that are expected to top 2013′s growth rates. Remember to click on each country to view a list of ETFs that offer exposure to the country.

Country 2013 GDP Projection 2014 GDP Projection
Hong Kong 3.0% 4.4%
Taiwan 2.2% 3.8%
South Korea 2.8% 3.7%
New Zealand 2.5% 2.9%
Australia 2.5% 2.8%
United States 1.6% 2.6%
Sweden 0.9% 2.3%
Norway 1.6% 2.3%
Canada 1.6% 2.2%

Follow me on Twitter @DPylypczak.

Disclosure: No positions at time of writing.

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