When I think of emerging markets, I picture somewhat disorganized countries with dusty streets offering cheap vacations on travelocity.com, however I recognize some key features such as:
- Heavily dependent on commodities with stock market valuations following commodity fluctuations
- More volatile markets compared to developed markets
- Political turmoil
- Reliance on other countries (usually stronger ones) for trade
I looked for other definitions of emerging markets and found various interpretations starting with the 1970’s term “less develped countries” (LDCs). A more recent description is from Julien Vercueil Emerging markets wiki
- Intermediate income: its PPP per capita income is comprised between 10% and 75% of the average EU per capita income.
- Catching-up growth: during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.
- Institutional transformations and economic opening: during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy. Hence, emerging economies appears to be a by-product of the current globalization.
Canada doesn’t fit into the category of dusty streets or cheap vacations (unless the dollar falls) but the market does follow emerging markets. There must be some features of the economy which parallel emerging markets such as heavy reliance on commodities and a desperate dependence on their big brother to the South. When viewing Canada from a equity perspective, it is curious why investors would choose riskier emerging countries like Brazil and Mexico. In other words, just buy Canada if you want a piece of emerging markets action.
Perhaps Canada can be viewed as merely a “trade” and not a place to buy and hold to build long term wealth. When commodities rise, buy, otherwise sell. Two years ago, I decided to leave the Canadian market because the country was not advancing by investing in advanced technology. As a software engineer, I could see scaling an impossible mountain to compete with the large high tech firms in the US and China, placing Canada on it’s emerging market track. I can see a future where systems like Uber act as the digital master of Canadians - calling them to work at a moments notice while shareholders become wealthy. I chose to be a shareholder, not a slave.