(CNN) - The IMF says global growth in 2013 will be an uphill climb but projects growth to reach 3.5% with emerging markets providing much of that boost. We’re already seeing signs of this through the scope of corporate earnings. In January, corporate earnings drove stock markets up, thanks in large part to emerging markets. GE’s fourth quarter revenues rose 4% beating expectations. GE cited China and other emerging economies as the driver for them. Apple reported record quarterly profits. CEO Tim Cook said in an earlier interview with Xinhua News Agency, “China is currently our second largest market. I believe it will become our first.”
While it’s not new that emerging markets are giving much-needed horsepower against the headwinds of the US and the Eurozone, it is interesting to note that countries like China, Indonesia and India still hold a wealth of untapped potential for investors. Younghao Pu, UBS chief investment officer for Asia Pacific, points out that emerging markets account for 50% of global GDP, but only 20% of stock market capitalization. That means there’s a lot of potential to grow. He believes Tier 1 Chinese cities like Beijing and Shanghai are saturated, mature markets where growth is decelerating.
“In China, multinationals need to penetrate into Tier 2 or Tier 3 cities like Chengdu and Xian where the growth rate is stronger,” Pu says. “Different companies are using agencies and I don’t think that model is building up the potential there in those cities.”
One reason for under-investing appears to be multi-layered. The business advisory group, Economist Corporate Network, recently surveyed 500 corporate clients about the current business climate in Asia. The majority of responses were from Western multinationals. According to the survey results, the companies found “murky” investment climates in certain regions, regulations that swung from unpredictable to protectionist and difficulty in finding reliable local employees.
Hans Paul Burkner, chairman of Boston Consulting Group, takes a much more optimistic approach and looks at emerging markets from the inside looking out. He recently spoke with CNN about what he calls “global challengers,” companies from emerging markets that are growing quickly. These are companies like Malaysia’s Air Asia, China’s Alibaba Group and Brazil’s building products company Tigre.
"They are fast growth, high ambition…and acquiring business models in North America, Europe and Japan. You should not be afraid because it’s not that they are coming in, sucking out all the technology and walking home. They want to really build a position (globally.)”
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