Emerging Markets Index China, Mexico Opportunity
19 May 2008
Emerging Markets Index Fingers China, But Also Points Out Mexico Opportunity
New Zealand companies would be well-advised to follow the just-published index figures for emerging markets when it comes to choosing trade and investment opportunities, says accountancy and business advisory firm Grant Thornton New Zealand.
Grant Thornton’s International Business Report emerging markets index for 2008 places the two most populous countries of earth, China and India, well ahead on others for investment and development, followed by Russia, Mexico and Brazil.
The index is produced using a weighted calculation of key indicators* and this year Mexico slipped ahead of Brazil to claim fourth spot.
“What is known as the BRIC group, plus Mexico, are where the big opportunities are for New Zealand companies looking abroad,” said Grant Thornton corporate finance spokesman in Auckland, Martin Gray.
“China with 496 points on the index and India with 234 are the stand-outs, and after spending eight years based in Hong Kong I don’t find this surprising,” he said. “But it is also worth keeping an eye on other emerging economies, such as Mexico, which has had unprecedented stability for the last seven or eight years.”
“Mexico’s GDP per head comes out ahead of China, India and Brazil and is a close second to Russia. It also has the advantage of proximity to the USA. With much-improved air links between New Zealand and South America, Brazil, population 190 million, too should not be ruled out.
Mr Gray said that China and India still stood out as the emerging markets with the best opportunities, due to their GDP and population size, growth potential and substantial imports.
“The China FTA gives us plenty of scope to take advantage of that giant market. The upcoming New Zealand Trade and Enterprise roadshow series on China will provide an ideal starting point for businesses wanting to test out their prospects.”
In a separate finding related to emerging markets, a Grant Thornton IBR survey that covers over 7,800 respondents from privately held businesses (“PHB) shows that New Zealand businesses either operating in or contemplating developing international markets rate market size and growth potential highest in their decision-making. Next highest rating goes to having confidence in a market’s ethical business credentials.
The survey also found that the number of PHB’s that export has increased from 35 percent in 2003 to 37 percent in 2008.
*Grant Thornton IBR emerging markets index
The World Bank classifies countries into four income bands. The advanced economies and rich countries (e.g. those with large oil-related incomes), are in the ‘high-income economies’ group. These 60 countries are excluded from the model.
Having excluded the above, we then focused on the 27 largest economies ranked by PPP GDP in the World Bank’s World Development Indicators database as at 14 September 2007.
2. Variables in the
A country provides opportunities for trade and investment in proportion to its size, wealth and growth prospects. Risks (such as political instability, corruption, civil disturbance) are not included in this model.
* Size is measured by
* PPP GDP (weight 20 per cent)
* population (weight 10 per cent)
* value of trade (both imports and exports) (weight 10 per cent each)
* Wealth is measured by
* PPP GDP per head (weight 15 per cent)
* HDI (weight 15 per cent)
Growth prospects are measured by
* Forecast of annual average GDP growth 2008-14 (weight 20 per cent)
Summary of weights
GDP 20 per cent
Population 10 per cent
Imports 10 per cent
Exports 10 per cent
Total 50 per cent
GDP/head 15 per cent
HDI 15 per cent
Total 30 per cent
4. Calculating the
Each of the seven variables in the model was averaged and an index calculated using this average (mean) as 100.
5 Calculating the composite score
For each country, each of the seven indexes derived as shown above is multiplied by the weight allocated to that variable. The sum of the seven calculations is the composite score for that country.
1 Purchasing power parity (PPP) translates
national currency GDP into dollars taking into account
differences in the relative prices of goods and services. It
provides a better measure of the comparative value of real
output than conversion using market exchange rates.
2 Sourced from the World Bank’s World Development Indicators data base
3 Sourced as above
4 Sourced from the World Trade Organisation International Trade Statistics 2007
5 HDI is a composite index (Human Development Index) calculated by the UN, measuring life expectancy and health, knowledge and a decent standard of living.
6 Experian forecasts.
**North American Free Trade