Capitalizing on Emerging Markets
Posted October 16, 2008 by Bernz
What are emerging markets?
Emerging markets are those countries experiencing rapid economic, political, and social transformation prompted by social and financial policy reforms. Emerging markets are often transitioning from government-sponsored closed markets to open market economies in which companies are privately or publicly owned and traded on market exchanges.
Emerging markets are growing at a faster pace than developed markets. According to The World Bank, emerging countries will continue to grow much more rapidly than the developed world. As emerging markets strengthen, the availability of mutual funds and exchange traded funds that track these markets increases.
How you benefit
Trends suggest growth in major emerging markets countries and regions may remain strong because:
- Increasing domestic demand for goods should promote growth even if external demand weakens
- Marked economic improvements within emerging markets are supported by legislative reforms
- Technology leads to improved productivity
- Inflation across emerging markets regions remains reasonable when compared to growth rates
- Increased country stability enables a variety of sectors to grow
- Emerging markets have become more resilient to the shocks that can accompany rapid growth
Characteristics of emerging markets
- Rapidly growing Gross Domestic Product (GDP)
- Economies with low-to-middle per capita gross national income (GNI)
- Attractive for foreign direct investment (FDI) due to low cost of labor and raw materials
- More volatile than developed markets due to evolving government structures and immature capital systems
Risks you should consider
In addition to the typical risks associated with investing, emerging markets carry additional unique risks that you should consider, they are:
- Lack of accounting or information standards within the country or region
- Geopolitical risks. Social or economic policy changes can alter the financial landscape very quickly
- Local currency depreciation
4 Responses to “Capitalizing on Emerging Markets”
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October 16th, 2008 at 9:39 am
Very good information. The big biz have taken this idea by storm but I think small biz can capitalize on this too.
October 16th, 2008 at 9:48 am
Yeah, I think it will be a downward spiral down the chain of command. It will go from big business, to small business, to the individual investor. More and more people as we speak are starting to diversify their portfolios by investing a percentage an the emerging markets.
October 22nd, 2008 at 5:10 pm
Emerging market is equal to high risk high return. In this kind of global economy slowdown, my emerging market portfolio getting crushed!
October 25th, 2008 at 7:37 pm
You make a lot of good points in this post. There’s definitely money to be made out there if one is willing to take the risks required. Have you had a chance to read The Big Gamble yet? It seems to me that the authors’ explanations of the differences between investing and financial speculation could be put to good use in these emerging markets.