Prime Time Financial

An important investment theme for many investors is “Emerging Markets”. This refers to countries in the world which have a less developed infrastructure. They are achieving economic growth, but are not as mature as the developed world.

Emerging Market Groupings

To illustrate this it is worth pointing out how Emerging Markets are often grouped together for investment purposes. While it is possible to invest in an individual country, it is more common to group them. For example, the “BRIC” countries include Brazil, Russia, India and China, “Asia Pacific excluding Japan” include South East Asian countries like Indonesia, Singapore, China, South Korea, and so on, while “Emerging Europe” includes Russia and emerging Baltic countries like Ukraine, Latvia, Romania.

Performance and Risk

Recent investment performance in Emerging Markets has been better in many cases than in the developed world. However, these markets are politically and economically more volatile than their developed counterparts, and so investments are subject to higher levels of risk.

The opportunity for growth comes from aspects like the greater investment in infrastructure (roads, water supply, etc.), availability of land and natural resources, and a growing “consumer society” wanting to improve their standards of living.

The risks come from things like bureaucracy which – along with corruption in some cases – hinders smooth development. Human rights records can act as a drag on development, while political instability and international friction can also dissuade investors. Economic experience in managing aspects like inflation is also less developed, although it could be said that banking systems are more stable than our own since they have not developed the convoluted products and procedures which caused the credit crisis in 2008!

All in all, Emerging Markets are increasingly significant for an investor looking for growth in their portfolio, and there are plenty of opportunities to invest when appropriate, both in equities of various types, and in bonds (fixed interest issues by governments and companies). They should form only a proportion of someone's investments. To decide how big a proportion and what is the best choice of investment we would recommend professional advice.

Last reviewed 22nd March 2011