Investment Opportunities In Emerging Markets: Brazil, Russia, India, China - Essay.

You are required to select four emerging markets (four countries outside United States, Western Europe, Japan and Australia), identify the portfolio investment opportunities which they offer to funds managers and investors, outline the performance of the opportunities identified, along with the risks of such investments, and make appropriate recommend-ations & conclusions  with supporting reasons for Australian investors.

In line with the marking rubric, your essay should contain (see Subject Out-line for the rubric and additional inclusions and setting out of your essay):

Research: A search of the literature to identify and describe four emerging markets and the opportunities they provide Australian investors;

Analysis: Analyse the performance of each identified investment, comparing their performances historically and with similar investments in developed markets; cite actual returns achieved, relate to the economic performance (growth, inflation, interest rate and exchange rate movements) of the selected countries, and the risks associated with the investments.

Recommendations and Conclusions:  Draw out with supporting evidence or reasons investors to whom the selected investments are suitable and the proportions of each which should be included in a balanced portfolio.

Illustrate your analysis, particularly performance history, with appropriate tables, charts and graphs, and where appropriate with illustrative examples.

Background on BRIC economies

This is a study, which will portray the investment opportunities in the emerging markets. The countries that have been selected for analyzing the investment opportunities are Brazil, Russia, India and China. These four countries are emerging in nature and is grabbing the attention of the foreign investors because of the lucrative setup of these market economies. Brazil is one of the largest economies in the continent of Latin America and exporters of energy. The market economy of the country is dependent on the oil and natural gas market (Al?Mulali, Solarin and Ozturk 2016). Similarly, Russia is also dependent on their oil reserves and has faced a lot of challenges in making a transition from the economy that is planned to a free market economy. The GDP of the country has progressed immensely and the country is among the largest economies in the world (Yang et al. 2017). India is one of the largest economies and one of the market leaders of the manufacturing industry. India has made commendable growth in the service sectors as they provide quality labours at cheap prices (Negi and Prakash 2016). China is the largest member of the BRIC in terms of GDP and size. China is one of the fastest growing economies in Asia and the foreign companies are making an effort to build relationship with this Chinese government to make an entry in to foreign market (Wang et al. 2016.). The report will consist of analysis of all the emerging countries, which will help, in identifying the investment opportunities and selecting a suitable market for the investors in Australia. Finally, the report will conclude with the development of the balanced portfolio for the chosen market.

The market analysis will consist of the portfolio investment opportunities in the countries of Brazil, Russia, India and China.

This table shows the foreign direct investment of the United States in Brazil and vice versa. This is a Historical Cost Basis analysis, which shows that United States have the highest number of Foreign direct investment in Brazil.

		Host Country Statistical Source		USG or International Statistical Source	USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	2016	$1,799,436	2015	$1,774,700	World Bank BCB
Foreign Direct Investment	Host Country Statistical source		USG or International Statistical Source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2014	$111,714*	2015	$65,272**	BEA data U.S. is Historical-Cost Basis
Host country’s FDI in the United States ($M USD, stock positions)	2015	$9,606*	2015	$23,660**	BEA data
Total inbound stock of FDI as % host GDP	2015	26%	N/A	N/A	IMF CDIS 2015 total inbound investment

Table 1

(Source: Vargas et al. 2016)

The table 2 shows the countries who have invested in the Brazilian Market and the data is little different from the data that has been sold in the previous table. This is due to the discrepancy between the BCB and IMF where BCB calculates the FDI distribution by checking the country with the ultimate investment (Vargas et al. 2016). However, IMF considers the country with the most current FDI investment so there is a change in the values in both the tables.

Foreign direct investment in Brazil and Russia

Direct Investment from/in Counterpart Economy Data (IMF Coordinated Direct Investment Survey, 2015)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment			Outward Direct Investment
Total Inward	460,381	100 %	Total Outward	145,043	100 %
Netherlands	110,210	24 %	Cayman Islands	52,456	36 %
United States*	82,125	18 %	Austria	30,937	21 %
Spain	57,426	12 %	Brit Virgin Islands	24,523	17 %
Luxembourg	34,732	8 %	The Bahamas	20,730	14 %
United Kingdom	23,213	5 %	Spain	11,403	8 %
"0" reflects amounts rounded to +/- USD 500,000.

Table 2

(Source: De Carvalho,Gallucci-Netto and Siqueira 2017)

The table 3 will show direct investment survey created by the IMF and includes the investment portfolio amounts for different countries in the market.

Portfolio Investment Assets (IMF Coordinated Portfolio Investment Survey, June 2016)
Top Five Partners (Millions, US Dollars)
Total			Equity Securities			Total Debt Securities
All Countries	23,595	100%	All Countries	71,816	100%	All Countries	5,779	100%
United States	10,316	44 %	United States	6,936	39 %	United States	3,380	58 %
Cayman Islands	2,604	11 %	Cayman Islands	2,481	13 %	Spain	713	12 %
Spain	1,685	7 %	Bermuda	1,502	8 %	Denmark	650	11 %
Bermuda	1,503	6 %	Luxembourg	1,105	6 %	Republic of Korea	487	8 %
Luxembourg	1,135	5 %	Spain	972	5 %	Cayman Islands	123	2 %

Table 3

(Source: Maier, Street and McKinnon 2016)

The economy of Brazil is in turmoil and the financial index in a bad shape. The market for jobs has declined significantly and the value of the currency is very low. The rate of interest in the market is high and so there is limited opportunity of investment in the market. However, many analysts suggest that that is the best investment opportunities for the foreign investors. This is due to the fact that the currency of the country is weak and the exchange rate has a high ratio. Dollar, pound and Euro are the currencies, which are dominating the Brazilian market so this, can be considered to be the best opportunity for selling (Maier, Street and McKinnon 2016). The export prices have decreased significantly due to weak currency of the country and this has increased the export of the products from the country. The banks are providing the consumers loans at higher rates so that they can gain even higher return from the market. The international banks feel that the best possible strategy is to invest in the emerging markets. The decision making of the foreign investor is the factor, which will decide the amount of revenue they can generate from the emerging markets.

The Table 4 shows the foreign direct investment of United States in Russia and vice versa.

		Host Country Statistical Source*		USG or  International Statistical Source	USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product GDP) ($T USD)	2016	$1.232	2015	$1.331
Foreign Direct Investment	Host Country Statistical Source*		USG or International Statistical Source		USG or international Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2016	$2.95 billion	2015	$9.2 billion
Host country’s FDI in the United States ($M USD, stock  positions)	2016	$8.09 billion	2015	$4.6 billion
Total inbound stock of FDI as % host GDP	2016	0.2%	2015	0.7%	N/A

Table 4

(Source: Kolupaev et al. 2015)

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment (2015)			Outward Direct Investment (2015)
Total Inward	257,287	100%	Total Outward	286,583	100%
Cyprus	86,281	34%	Cyprus	104,446	36%
Netherlands	32,368	13%	Netherlands	57,461	20%
Bahamas	21,297	8%	British Virgin Islands	33,501	12%
Bermuda	13,562	5%	Austria	21,054	7%
Germany	13,523	5%	Switzerland	16,456	6%

Table 5

(Source: Watson and Seetharam 2014)

This table shows the amount of investment made by the countries in which shows that Cyprus is one of the leading traders of the foreign direct investment. This shows that the Russian market is lucrative and is able to grab the attention of lot of foreign investors.

Portfolio Investment Assets (as of December 2015)
Top Five Partners (Millions, US Dollars)
Total			Equity Securities			Total Debt Securities
All Countries	68,119	100%	All Countries	2,814	100%	All Countries	65,304	100%
Luxembourg	24,612	36%	United States	546	19%	Luxembourg	24,257	37%
Ireland	19,379	28%	Cyprus	437	16%	Ireland	19,377	30%
Netherlands	4,420	6%	Luxembourg	355	13%	Netherlands	4,179	6%
United States	3,514	5%	Netherlands	241	9%	United States	2,968	5%
Cyprus	2,468	4%	Ireland	42	1%	Cyprus	2,031	3%

Table 6

(Source: Fischer 2016)

The table 6 shows the portfolio investment of the various countries in the Russian market. The table will highlight the investment of the various countries in securities market in the country of Russia.

The investment sectors in Russia consist of the high risk and all the major multination companies have to face challenges in operating. The local players dominate the Russian sectors and portfolio investment is very risky, as the companies are partly owned by the state. The reputational risk is high as most of the companies in the oil and gas sector are facing serious disputes in ecological issues. The technology sector is also a risky sector as the amount of return on investment is low due to the intervention from the government. The country is not stable at an political level and the decision making of the companies in the market are influenced by the government in the industry (Fischer 2016). However, the retail industry in Russia brings about a lot of opportunities for the foreign investors and the growth in the retail segment is promising. There is a lot of demand of the luxury items in the market so the foreign investor has the opportunity of investing in this market.

Portfolio investment assets in India and Russia

		Host Country Statistical Source*		USG or International Statistical Source	USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP)	2015	$2.1 trillion	2015	$2.095 trillion	Mospi World Bank
Foreign Direct Investment	Host Country Statistical Source*		USG or International Statistical Source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (stock positions)	2015	$19.280* billion	2015	$28.335 billion	BEA data available at BEA
Host country’s FDI in the United States (stock positions)	2012	$2.052* billion	2014	$9.3 billion	BEA data available at BEA
Total inbound stock of FDI as % host GDP	2014	1.8%	2015	2.1%	World Bank

Table 7

(Source: Garg and Dua 2016)

The table 7 highlights the investments that have been made by United States in India and vice versa

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment			Outward Direct Investment
Total Inward	312,152	100%	Total Outward	84,826	100%
Mauritius	63,077	20%	Singapore	17,721	21%
United States	50,152	16%	Mauritius	15,322	18%
United Kingdom	45,802	15%	Netherlands	12,259	14%
Germany	33,112	11%	United States	8,889	10%
Singapore	32,909	11%	UAE	4,449	5%
"0" reflects amounts rounded to +/- USD 500,000.

Table 8

(Source: Dua and Garg 2015)

The table 8 shows the investment that has been made by all the countries in India and the data suggest that Mauritius has the maximum investment among all the countries.

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total			Equity Securities			Total Debt Securities
All Countries	1,650	100%	All Countries	1,640	100%	All Countries	10	100%
United States	496	30%	United States	494	30%	Singapore	6	60%
United Kingdom	292	18%	United Kingdom	290	18%	United States	2	40%
Luxembourg	273	17%	Luxembourg	273	17%	United Kingdom	2	40%
China P.R. Mainland	236	14%	China P.R. Mainland	236	14%
Mauritius	77	5%	Mauritius	77	5%

Table 9

(Source: Yildirim and Masih  2014)

The table 9 shows the capital spent by the companies on the portfolio investments in the Indian market. United States and United Kingdom are the two countries who have invested the maximum amount in the portfolio market.

The foreign portfolio investment in the country is increasing at an rapid rate due to the stability in the political aspect of the country. The investment pattern this year shows that the foreign investors have increased the investment in equities and there high expectation from the market. The new government has established new reforms, which is changing the market scenario of the country (Yildirim and Masih 2014). The performance in most of the sectors has increased rapidly and basic materials have outperformed all the other market. Telecom and Information technology market are underperforming. Thus, the overall scenario shows that it is feasible to invest in the market as it proving the foreign investors with a lot of opportunities.

Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) (in US$)	2016	$11.39  trillion	2015	$11.01 trillion
U.S. FDI in partner country (in US$, stock positions)	2015	$70 billion	2015	$74.56 billion
Host country’s FDI in the United States (in US$, stock positions)	2015	$40.8 billion	2015	$14.84 billion
Total inbound stock of FDI as % host GDP	2014	16%	2015	11.1%

Table 10

(Source: Dollar 2017)

The table 10 shows the foreign investment made by United States in China and vice versa.

From Top Five Sources/To Top Five Destinations ()
Inward Direct Investment	Amount (US Dollars, Millions	%	Outward Direct Investment	Amount	%
Total Inward	2,579,564	100%	Total Outward		100%
China, P. R. Hong Kong	1,238,823	48%
Brit Virgin Islands	328,085	13%
Japan	151,926	6%
Singapore	111,218	4%
United States	78,490	3%

Table 11

(Source: Carpenter, Lu and Whitelaw 2015)

The table 11 shows the various who have made their investment in the country of China.

China is the fastest growing nation in the world and the economy of the country is growing at a rapid rate. This has made the country lucrative for the foreign investors and investment in the country has increased significantly in the year of 2017 (Carpenter, Lu and Whitelaw 2015). The record suggest that there has been surplus in the investment and foreign direct investment have increased significantly.

China is the market that is most suitable for Australian investment as the growth in the Chinese market is highest among all the other countries in the world. Australia is among the countries who invest a lot in the foreign market and the Australians have invested a lot of amount in the foreign market (Borst and Lardy 2015). India, Russia and brazil are also growing but it is the best time for the investor to be investing in the Chinese market as the revenue that they can be generated from this market will be more than the other markets.

Economic data of analyzed countries

In order to gain from the Chinese market the investors will have to create a balanced portfolio so that they can mitigate all the risk and improves the return from the market. The balanced portfolio in the Chinese market is shown below:

XS1068221230	0 LONGFOR PROPERTI LNGFOR 6 3/4 05/28/18	10.08%
700 HK	Tencent Holdings Ltd	8.25%
884 HK	CIFI Holdings Group Co Ltd	5.84%
XS1014156274	KWG PROPERTY HOL KWGPRO 8.975 01/14/19	5.80%
XS1149696996	YUZHOU PROPERTIE YUZHOU 9 12/08/19	5.71%

Table 12

(Source: Created by author)

This is a portfolio, which consist of the unit holders that have a moderate capital appreciation in the long term and the potential to generate revenue by investing in the fixed securities and equities. These securities and equities are available in both on shore and off shore China.

Conclusion

Thus, form the above report it can be concluded that the Chinese market is the most suitable market for Australian investors. The three other emerging economies are also growing but the economic growth of China is far greater than the other nations. This is the right time to capitalize on the market situation and the investors will have to make sure that they analyze the market thoroughly before entering the Chinese market.

Reference 

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Borst, N. and Lardy, N., 2015. Maintaining financial stability in the People's Republic of China during financial liberalization.

Carpenter, J.N., Lu, F. and Whitelaw, R.F., 2015. The real value of China's stock market (No. w20957). National Bureau of Economic Research.

De Carvalho, A.G., Gallucci-Netto, H. and Siqueira, E.M., 2017. Determinants of success in venture capital investments: evidence from Brazil. Venture Capital, 19(3), pp.147-161.

Dollar, D., 2017. United States-China two-way direct investment: Opportunities and challenges. Journal of Asian Economics, 50, pp.14-26.

Dua, P. and Garg, R., 2013. Foreign Portfolio Investment Flows to India: Determinant and Analysis. Centre for Development Economics, working paper, (225).

Fischer, P., 2016. Foreign direct investment in Russia: a strategy for industrial recovery. Springer.

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Kolupaev, R.V., Rogacheva, L.I., Moskalenko, A.V., Ulrikh, I.V. and Mikhailova, T.A., 2015. Special considerations of the financial investment in Russia. Asian Social Science, 11(7), p.297.

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