Emerging markets have continued to be a popular investment area since the early 2000s. They offer unique investment opportunities because they offer rewards and business risk elements. Most development experts agree that the term “emerging market investments” applies to regions or countries experiencing fast economic growth. At the same time, these countries also tend to undergo their greatest market volatility.
While these markets present huge potential gains for investors capable of identifying suitable emerging market investment at the opportune time, sometimes, the risks involved are not well understood. For investors, a key consideration when allocating an investment portfolio in an emerging market should be the risk tolerance level.
Although historically these investment risks have been viewed as a barrier, over the last decade, the situation has changed. No longer are these regions or countries the uncharted markets they were previously. Today, they are advancing economies with huge opportunities for growth and continually improving their political and economic environments.
The great question to ask is why invest in an emerging market? The answer is that emerging market investments have the potential for fast and high growth. In addition, international investments are an excellent way of diversifying an investment portfolio. Downturns in one region or country market can be offset by profit and growth in another
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When due caution is exercised, the return or rewards of investing in a fast-growing emerging market may outweigh the associated risks. The secret to leveraging growth in emerging markets is to limit your investment portfolio to reasonable risks. For instance, investing in exchange-traded funds (ETFs) is a great investment option because it’s possible to add a combination of countries or an entire nation to a portfolio.
In addition, because of their global outlook, many US blue-chips stocks offer investors decent exposure to growing and emerging markets. The revenue base and stability of Coca-Cola, for example, is a reflection of the popularity of the global company in the United States, Japan, China, and many emerging markets in Africa, Asia, and Latin America. Buying funds or stocks that invest in a company like Coca-Cola balances emerging market risk exposure with the stability of a developed home market.
Some factors that may deter investing in emerging-market countries are inflation, national debt, and governance. However, today, many of these countries are catching up with, and in some instances, surpassing the rest of the world regarding reining in inflation, managing government debt, and streamlining corporate governance. In particular, historically, inflation has been a significant deterrent, with memories of triple-digit inflation still fresh in the minds of some wary investors. But many emerging-market economies may no longer merit the tag of uncontrolled inflation and poor governance.
For many emerging markets and countries, the current challenge is navigating the post-COVID-19 recovery period and keeping inflation under control. Choosing an investment destination will be critical. When selecting, factors include assembling a flexible portfolio that allows for investment diversification across many countries, market caps, and industries. To leverage opportunities in emerging markets, it will be important to have an experienced investment team with a long-term track record of a repeatable, clearly defined investment process.
