1. What is meant by the term "emerging market?" (use information found in the article as well as new ideas from a web search) 2. Why are emerging markets important for investors and companies that want to expand their global business opportunities? 3. List the challenges currently facing emerging markets. 4. Discuss the potential for companies considering expanding into Africa. 5. Evaluate the role political stability and free markets play in the potential of emerging

After a decade or so in which emerging markets reliably juiced the global economy, this is a wake-up call for investors. These countries vary in terms of economic and political development. Protesters in different places have particular grievances, from Brazilians facing higher bus fares to Turks fearing the destruction of a park. But since the turn of the century, investors increasingly have treated emerging markets as a single asset class, collectively borne aloft by favorable trends, such as China's emergence into the global trading system. Concepts such as the Brics countriesoriginally Brazil, Russia, India and China, later joined by South Africacemented the idea that developing countries could be treated as one. Such ideas proved rewarding: Emerging-markets stocks, foreign exchange and credit returned 19%, 6.8% and 11%, respectively, from 2003 to 2010, compared with a 4.1% return for the Standard & Poor's 500-stock index, according to Goldman Sachs. The supportive tailwinds are slackening now, exposing underlying weaknesses. Take exports. Selling goods to credit-fueled developed countries helped emerging markets narrow their trade deficits and boost employment, especially before the global nancial crisis. But this dynamic has stalled. The preliminary reading for new export orders on the HSBC Markit purchasing managers' index for China fell to 44.0 in June, with a reading below 50 indicating contraction. Clearly, Europe's moribund economy is hurting trade. But even the relatively sustained recovery in the US. is proving less helpful than expected. As UBS strategist Bhanu Baweja points out, recent growth in the US. has centered on industries such as construction, autos and energy. These are sectors in which the US. is either pretty self-sufficient or reliant more on countries like Germany for supplies. There is less robust demand for products like electrical goods, 11% of all emerging-markets exports, or clothing, which accounts for 4.2%. This has weakened the usually strong link between US. and emerging-markets growth. China's Janus-faced position has exacerbated emerging nations' problems. Like its peers, it gained when exports to developed economies were strong. Its own investment boom, meanwhile, juiced commodities prices, which beneted those nations that export them, such as Brazil. Now, China's growth is slowing and Beijing wants to curb the economy's reliance on xed-asset investment. Slower growth forms the backdrop to rising popular discontent. Turkey's gross- dornestie-product growth rate was 2.5% last year, down from 9.2% in 2010; Russia, which saw mass protests last summer, has seen growth slow to 3.4% from 4.3% in 2010 and 2011. Brazil's also slowed sharply in the same period. The International Monetary Fund just cut its Russian growth forecast for this year from 3.4% to 2.5%. The unrest suggests governments didn't do enough to tackle underlying problems during the good times. All of the Brics countries have fallen in Transparency International's Corruptions Perception Index in the past decade. And while labor productivity growth for emerging countries remains faster than for their developed peers, the gap has narrowed in the past three years, the result of a slowing pace of economic overhauls, Mr. Baweja suggests. Data on inequality are less conclusive. The Gini coefcient measures wealth disparity. In Brazil, it fell to 0.51 in 201 1 from 0.55 in 2004, according to the Socio-Economic Database for Latin America and the Caribbean, indicating the gap between rich and poor narrowed. But that is still well above the average of about 0.3 for members of the Organization for Economic Cooperation and Development. The problem for countries like Brazil is that when times get tougher, disparities come into sharper focus. That raises political risk premiums, which fell through much of the rst decade of this century. Already, since 201 l, emerging-market stocks' annualized return has declined to a negative 6.3%; for foreign exchange, it is now a negative 0.8%. Credit has remained relatively buoyant, up 7.3%. Still, the S&P 500, with a return of 12%, has outgunned them all. Rising Treasury yields will worsen this trend by pulling more investor dollars there even as developing countries that have become reliant on external nancing, notably Turkey and South Africa, look particularly vulnerable. China's nancial crunch has resulted partly from a sharp reduction in capital inows from abroad and mounting concerns about bad loans after a multiyear credit binge. Volatility has reared its ugly head already, leading Brazilian building-materials company Votorantirn Cimentos to pull a multibillion-dollar initial public offering, and Russia to cancel two government-bond auctions in recent weeks. Acquisitions targeting companies in BRIC countries have fallen 16% year on year in 2013, to $155.2 billion, the lowest year to date since 2009, according to data provider Dealogic. The center can't hold: "The notion of wanting broad exposure to emerging market assets is likely to be a lot less appropriate than it was a decade ago," as Goldman Sachs, which coined "BRIG," puts it. Countries with large current-account decits and heavy reliance on commodities, such as Brazil, could prove shaky. But ah the Brics countries must grasp the nettle of overhaul before they can be viewed as safer long-term bets. It is unfortunate that they must now do this during a decade that looks much harsher than the last one. End Global Business and Emerging Markets by: Andrew Peapr'e Jun 24, 2013 TOPICS: Global Business, Investment in Emerging Markets SUMMARY: Both investors and companies that want to expand overseas need to understand the potential and risks of emerging markets. In recent years the term was used to apply to all developing countries but there are differences both in economic prospects and political environments. The US. economy recovered but it did not generate robust demand for products from emerging market economies and countries. Unrest and stalled growth characterize some emerging market countries. Different countries and regions can have different prospects. One possible frontier market is Africa. US. companies are branching across Africa. Steady growth and more stable governments in Africa help explain increased interest by companies. CLASSROOM APPLICATION: The broad term "emerging market" was used to describe developing countries with growth and potential for growth. Investing in emerging markets yielded strong returns. Developing and marketing in these countries was also successful. The current environment suggests not all emerging markets have the potential for growth and stability. Investors need to understand and evaluate the differences among countries. Slower growth and political risk and unrest indicate some countries may grow at a slower pace. Africa might be a region with potential for the future. One question for companies is; "Can Africa become the next China?" Key are free markets and political stability. The articles illustrate how investors and companies need to re-evaluate decisions and re-examine risks and rewards in foreign markets as conditions change overtime. QUESTIONS: 1. What is meant by the term "emerging market?" (use information found in the article as well as new ideas from a web search) 2. Why are emerging markets important for investors and companies that want to expand their global business opportunities? 3. List the challenges currently facing emerging markets. 4. Discuss the potential for companies considering expanding into Africa. 5. Evaluate the role political stability and free markets play in the potential of emerging markets. End