Foreign Affairs

The Shape of Things to Come

Hot Markets to Watch

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The idea that we live in an increasingly interconnected and turbulent world is something of a cliché -- yet true and important nevertheless. Decisions made by the U.S. Federal Reserve affect the purchasing power of villagers in southern Thailand; consumer demand in Europe and North America affects the output of factory workers in eastern China, which affects the jobs of oil workers in Brazil, Russia, and elsewhere. Elite investors now routinely send their capital abroad in a ceaseless quest for new opportunities and high returns; whether they realize it or not, hundreds of millions of less highflying people do the same indirectly, through their mutual or pension funds. So global economic forecasting -- trying to look past current events to glimpse what’s coming over the horizon -- has become an exercise of general, not specialized, concern.

A decade ago, the big story in the international economy was the so-called rise of the rest: the impressive growth of dozens of emerging markets around the globe. Poverty rates plummeted, the middle class exploded, and forecasters began talking of a great convergence, in which broad swaths of the developing world would catch up to the developed one. Then, the global financial crisis hit like a tidal wave, dousing almost everyone and redrawing the landscape. In its wake, many of the once-hot emerging markets have cooled. The BRICs are crumbling. China’s three-decade run of phenomenal growth seems to be ending, with the big question now being whether its landing will be hard or soft. And half a decade after the crisis began, Europe is still floundering. But not all the news is bad. The United States has surprised skeptics by making a slow but steady recovery, led by energy and manufacturing. And a whole new crop of green shoots is springing up.

WHERE TO BET NOW

Given the tumult, we decided that now would be a good time to survey these up-and-comers: countries and regions whose combination of size, recent performance, and economic potential will make them particularly interesting to watch and attractive to investors over the next half decade. All our choices -- Mexico, South Korea, Poland, Turkey, Indonesia and the Philippines, and the Mekong region -- are well positioned to thrive as China slows and the commodity boom cools. All have crucial strengths to draw on and will play increasingly important roles in the future of the global economy. And yet, as our expert authors show, each faces a distinctive set of challenges.

After years of stagnation, violence, and political drift, Mexico is now enjoying energetic new management, and recent reforms, plus the country’s vast oil wealth and proximity to the world’s largest market, should spur it forward in the years to come. (In an exclusive accompanying interview, Mexican President Enrique Peña Nieto explains how he did it and what he plans next.)

South Korea and Poland have also profited from smart leadership and proximity to bigger players; indeed, both have grown so rapidly in recent decades that they no longer fully qualify as “emerging.” But both remain more volatile than established, fully developed states, making their manufacturing-driven economies especially appealing for investors.

Turkey’s story is somewhat similar, although its economy remains less advanced and its leadership less enlightened. With an impressive decade behind it and an important election ahead, Turkey faces its biggest challenge today in the realm of domestic politics. As Prime Minister Recep Tayyip Erdogan flirts with authoritarian populism, the country teeters between continued growth and a reversion to the Middle Eastern mean.

Giant Indonesia also confronts political challenges, and a crucial election in 2014 will determine whether it delivers on its promise or returns to the more familiar path of stagnation. Meanwhile, the nearby Philippines, now an outsourcing powerhouse, has been racing ahead under the clean and committed stewardship of President Benigno Aquino III.

Finally, mainland Southeast Asia -- the region around the Mekong River and its tributaries -- is rediscovering the benefits of interconnectedness, as its diverse economies take advantage of their ancient cultural ties and new transportation links to grow together.

We round out the package with a look at the pitfalls and promise of economic forecasting in general by Ruchir Sharma, the head of emerging markets and global macro at Morgan Stanley Investment Management.

Even the best crystal ball gets cloudy at times, of course, and there are many factors such a package cannot cover, from unexpected technological developments to currency fluctuations to natural disasters (such as Typhoon Haiyan, which struck the Philippines just before the package went to press). We have not tried to make short-term predictions, nor have we focused on the extent to which global markets may have already priced in the various issues our authors discuss. What we have tried to do is offer a compelling look at the fundamental issues likely to drive success or failure in some of the global economy’s newest and brightest stars in the years to come.

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