Emerging Markets ("Lucky 7" now?)

Emerging Markets ("Lucky 7")

There was a time, not so long ago, when it seemed the rugged promise of the globe’s economic frontier could be summed up with a simple acronym: BRIC.

To investors and corporate prospectors alike, Brazil, Russia, India, and China were like Gold Rush towns high in the hills. But now, there might be the Lucky 7 here:

Jim O’Neill, who had risen to head global economic research at Goldman Sachs—lumped these four behemoths together in a November 2001 analyst report, titled “Global Economics Paper No. 66: Building Better Global Economic BRICs.” That modest 16-page client briefing would inevitably launch untold numbers of BRIC mutual funds and ETFs, indexes, investment conferences, and Wall Street research teams. It would force major companies to rethink their own marketing and manufacturing strategies, reroute supply lines, and send billions of corporate investment dollars into a constellation of once-little-known cities from Bangalore to Shenzhen.

When Jim O’Neill coined the term, Brazil, Russia, India, and China accounted for $2.7 trillion in GDP, or 8% of the world economy. They account for roughly 19% today. (In 2010 the four BRICs invited South Africa to join the group, making them BRICS with a capital “S.”)

Short Recap since 2001: India’s GDP exceeded $2 trillion last year. China’s output is five times that, its economy second in power only to the U.S.’s. Brazil’s growth rate rose, albeit in fits and starts, from 4.3% in 2000 to 7.5% in 2010. Over the same decade, Russia’s middle class doubled in size.

The Emerging-Market/EM-economies can hit their estimated long-term growth targets only if political leaders were willing and able to “maintain policies and develop institutions that are supportive of growth.” In other words, these emerging stars would emerge only if they were well governed. For many developing countries—BRICs and beyond—that’s been the key missing ingredient.

A decade ago it seemed that almost every emerging market would fully emerge. Money flowed into dozens of countries, and their governments were content to let the good times roll. No need for painful reforms when all the lights are green. Middle classes expanded, and public expectations soared for ever-rising standards of living.

Following the experience about governing and government problems in some emerging-market-countries one should now look for: stability and resilience. In short, these are markets where it would seem good governance and sustainable growth are likely to go hand in hand. Important also to know, that India, Indonesia, and Malaysia should now/soon further benefit from political and commercial competition for regional influence among the U.S., China, and Japan.

Another region showing great promise is sub-Saharan Africa, now home to the world’s fastest-growing middle class. Investors continue to think of Africa almost entirely as an exporter of oil, gas, metals, and minerals, but services are playing an ever larger role across the continent. And governance in many countries has improved sharply. The World Bank’s 2013–14 “Doing Business” report asserted that sub-Saharan Africa has benefited more than other regions from regulatory improvement. Few countries offer greater promise than Kenya.

Latin America, Mexico, and Colombia offer opportunities that Brazil and Chile, let alone Argentina and Venezuela, cannot. Also Poland may offer/offers a rare bright spot.

Details on India, Indonesia, Malaysia, Mexico, Poland, Kenya and Columbia, the complete Fortune-text and a short video can be found here: