An acronym for our best bets in emerging markets was hard to conjure (see The new world of business). A much easier task was coming up with one for the likeliest losers over the next five years. We’d recommend, for example, that you stay away from investing in RATS—that’s the foursome of Russia, Argentina, Turkey, and South Africa.
The conflict in Ukraine, Western sanctions, and lower oil prices are all bad news–and none of these problems is going away soon. Sanctions are inflicting both near- and longer-term damage on Russia’s economy. Spiraling oil prices aren’t helping either, given that Russia’s government draws half of its revenue from oil exports. Yet, President Putin’s refusal to reverse course in Ukraine all but ensures that there will be more damage to come for his poorly diversified economy.
This fall’s election can only make things better. Maybe.
Argentina’s Merval Index is up by 49% over the past year, despite the government’s default on its debt last summer—the eighth default in the country’s history—and an economy that can best be described as dysfunctional. The coming presidential election this fall probably can’t make matters much worse—but that’s probably the most optimistic thing we can say about the investment picture there.
President Erdogan will tackle anything, except his country’s most important economic problems.
In Turkey, President Erdogan seems likely to continue to devote his time to political infighting rather than the labor and governance reforms his country needs to bolster growth.
President Jacob Zuma is strong enough to resist change, but not strong enough to create it.
And South Africa has an increasingly unpopular ruling party and no opposition capable of forcing change.
Finally, we considered adding Venezuela to this infamous list, but in the end decided against it. First, its broken political system and basket-case economy leave it unfit even for this company. But more importantly, we left it out because it would spoil the acronym.