Which are the undervalued countries these days?

With the eurozone falling apart, and growth in China, India, and Brazil slowing down, which countries remain undervalued?  I have a few — and I stress that word few — selections:

1. Philippines.  Their rate of growth has been picking up as of late, they have plenty of “low hanging fruit,” they don’t rely too heavily on durable goods exports to the wealthier countries (that’s the bad news too, of course), and sooner or later they are due for a burst of investor attention.  I don’t wish to oversell this one, but we are talking “undervalued” here, not “the next Singapore.”  One danger is 14.9% of their exports going to China, another is bad institutions.  Still, articles about this country use the phrase “bucking global trends.”

2. Pakistan.  Most of all, the bad news here is already on the table.  As far as the economic data, here is a quick review of where they are at.  I’m not claiming it is impressive.  Still, all they need is a bit of peace and order to prosper more, and while I am not predicting that in an absolute sense, it is mostly uncorrelated with the economic performances of the wealthier countries.  Think of the country as a kind of risk-free asset, in the covariance sense that is.  Keep in mind that until the late 1980s they usually had higher rates of economic growth than India did.  They stand a good chance of playing catch-up, especially if they are willing to accept a subordinate place in India’s economic orbit.  Which right now they are not, but arguably that is the future trend, and indeed Bangladesh has made exactly that leap in terms of economic self-image.

3. Mexico.  I’ll be writing on this more elsewhere, so I’ll save up my arguments for now.  One point is that China’s slowdown, and the relative economic stability of the U.S., both augur well for the Mexican economy.

4. Gujarat.  Just pretend it is a country, after all it has more than fifty million people.  They have averaged more than 10 percent growth for the last seven years.

You can make a case for Ghana and Rwanda as well, mostly because of their satisfactory record in agricultural productivity.  Most other places are due for a fall.

Addendum: Via Michael Clemens, here is a related article.  I view Turkey and Poland as “capitalized,” however.


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