Structural reforms needed for EMs

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Gerardo Rodriguez, managing director and co-manager of the BSF Emerging Market Allocation Fund, makes the case for why growing emerging market economies need to focus on a strong structural reform agenda to succeed:

“Markets have been struggling for the past two to three years as emerging markets growth has slowed down. Once you get beyond a certain point of income per capita, in order to continue growing, emerging economies need to have a strong structural reform agenda, and this is not an easy process.

“Mexico currently tops the list when it comes to structural reform. Constitutional reform and secondary legislation has already been passed through Congress, with the government now in the implementation process. This will open unprecedented new investment opportunities in sectors like energy that had been closed for private investment. New regulation in telecoms and increasing competition will also foster activity in sectors that have been dominated historically by existing players.

“India is another example of an emerging market country making structural reform a priority. Prime Minister Modi continues to put energy in his reforms, with a number of new initiatives already in place; however we are still waiting to see congressional backing of these, which is just as important.

“Other countries are struggling to implement these reforms.  Although just coming out of a recent election, Brazil is still lagging behind due to steady macro deterioration over the past few years. We have yet to see the appointment of a finance minister there, and the willingness from a President to change her macro perspective

“The world can no longer rely on a commodities boom and astronomical growth from China for emerging market asset prices to perform well. As these countries move into consumption-led societies, structural reform must be at the forefront of their minds.”


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