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It doesn’t seem to matter which Emerging Market grouping you belong to and, honestly, all of them should be taken with a pinch of salt, your currency is likely to be taking a pasting at the moment. And that’s before the Federal Reserve has even raised rates, next year could be worse.
If the Fed’s twice postponed move to raise rates goes ahead in December, the dollar is likely to strengthen further next year causing a flight from weaker EM currencies to the dollar or dollar assets.
Jim O’Neill’s original BRICS (Brazil, Russia, India, China and later South Africa) have not been performing of late, not as energetically as they promised in 2001 when O’Neill came up with the acronym. Indeed, Brazil, Russia and South Africa are in economic crisis, China is growing at the slowest pace in a generation and India’s growth will soon slow if it doesn’t grasp the nettle and start introducing long overdue reforms.
So, what about the CIVET(s) that came along afterwards comprising Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa again? Well that grouping, too, has fallen somewhat out of favor as the differences became more apparent than the similarities.
Can A New Group Make a MINT?
So will the latest gang do any better? The MINTs certainly sounds cool and tasty. Sorry, I couldn’t resist that. Mexico, Indonesia, Nigeria and Turkey do have some characteristics in common. They all have relatively large populations, have until recently enjoyed rapid growth, are developing a rising middle class and, according to an FT article, display entrepreneurial cultures.
So, to what extent does grouping these countries together make sense? In some ways they are very similar, at least three of them – Nigeria, Indonesia and Mexico are significant commodity exporters and therefore caught in the crossfire of the end of the super-cycle and slowing global trade growth.
Turkey may be a net importer of energy and so benefit from the falling oil price, but it has benefited greatly from globalization as well and its steel, jewellery and automotive industries have driven export-led growth.
Of the others, Mexico has cleverly hedged much of its current oil production and hence avoided the worst of the pain felt by Nigeria for whom oil and oil products make up a significant proportion of its balance of payments. Likewise Indonesia, a net oil and commodity exporter, has suffered from the falling oil price, falling coal prices, failing commodity prices and the slowdown in China.
Political instability has been an issue for some of the MINTs in the past and remains an issue for several. Mexico’s current president is polled as the least-popular in 40 years and although Nigeria managed its first successful transition of government in 55 years since independence following this year’s presidential election, it is fighting a civil war with extremist insurgency Boko Haram that is draining lives, money and political attention.
The Next Big Thing?
All 4 countries suffer from inflation, a current account deficit and falling currencies making them vulnerable to instability when the Fed raises rates. A flexible exchange rate does allow countries to adjust to external shocks and maintain competitiveness, but its also makes emerging markets such as the MINTs exposed to spiraling debts if, as they all are, they are heavily indebted in foreign currencies.
So rather than the next big thing for investors, the MINTs will be under the scrutiny of foreign lenders concerned that weakening exchange rates put their repayments at risk or place undue strain on corporate or national balance sheets.