There are various elements of a successful investment strategy, especially one that’s geared towards capital growth and above-average returns. For one thing, such investors are usually in the habit of looking for opportunities where others aren’t looking, or where others might be too cautious to explore. That’s why emerging markets might be one place for forward-looking investors to seek the kinds of investment options that could add capital growth, as well as various types of diversification, to an investment opportunity.
As with just about every investment opportunity, especially those that come with promising returns, emerging markets come with their benefits, as well as their risks. Regarding the benefits, emerging markets generally experience economic growth rates that far exceed the developed world. As a general rule, where there’s economic growth, there’s also opportunity for growth with invested capital.
Regarding the risks, also as a general rule, emerging markets don’t come with some of the regulatory safeguards, as well as political stability, usually associated with already-mature markets. Yet, even on this front, there are some pitfalls, such as uncertainty and unpredictability, but there is also some upside, too. Specifically, when there is less regulation, there is also a lack of over-regulation. Which means investors can have access to investment opportunities that would be met with red tape and bureaucracy if they were offered in, say, North America or Europe.
Even when it comes to political and regulatory uncertainty, these are always factors that can be managed by investing experts who know their way around and can avoid the pitfalls that average investors can sometimes run into.
There are various reasons, beyond economic growth rates, that make emerging markets — such as Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela — so attractive.
The right formula for investing
In general, emerging markets have relatively young and growing populations that make for a growing middle class, not only in terms of a workforce, but also as a consuming population. Many of the world’s growing companies no longer exist only in the States and Europe, but in places such as Brazil, Russia, India and China. In addition, emerging markets also tend to be resource rich, which will fuel even further growth in all emerging markets.
In addition to all these advantages to investing in emerging markets, doing so also checks all the boxes when it comes to portfolio diversification — in a number of ways. For example, regional diversification is often an under-utilized method of portfolio diversification. But, most importantly, emerging economies are simply different than those in the developed world. For example, during the global financial crisis of 2008, it was the continued growth of emerging markets that prevented the recession from reaching further and hitting harder than it did.
As a result, there is no shortage of reasons for why investors seeking above-average growth shouldn’t look towards emerging markets as a source of high-opportunity investing with manageable risk.
ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.