Emerging markets are important to the economy and they provide opportunities for investment and they usually occur in developing countries.
Developing countries have the ability to be more stable than developed markets such as those in the U.S. and Western Europe. This is because emerging markets such as Brazil have high revenues with a budget surplus. Since these markets have little or no debt to pay off, they are actually safer places to invest. Another country that is experiencing the benefits of a strong emerging market is India. Hedge funds there went up 49.1 percent in October and financial advisors in the U.S. are taking note.
Marko Dimitrijević, the founder of firm Everest Capital said, “We believe in their reform agendas, they are doing the right things from a macro standpoint, and their currencies are also more likely to hold their value against the U.S. dollar.” Investors turn to macroeconomics to decide whether or not to invest in a region or specific country. When it comes to investing it is important to be focused on a certain country and the specific economy within that country. Emerging markets are growing economies and these are important areas that investors can see a return on their investments. In other parts of the world and in developed economies the trend is not so positive.
Pradipta Chakrabortty is a manager of a fund that specializes in emerging market investments. He believes that it is necessary to look past the obstacles such as social unrest or infrastructure problems that often plague developing countries. Businesses have the ability to succeed even in a context that seems to counter the political issues.
Investors are looking to profit in emerging markets because they have attractive features such as growing populations and high government spending on infrastructure. These and other factors are important when looking to invest.
There are also negatives to investing in emerging markets. For instance, they sometimes are at risk due to the value of their currency because it is not always stable. Fluctuations in the market leave the currency at risk and the likelihood that it will be devalued increases. The term investors use to describe investing in many different economies is “diversification.” Portfolios need to be diverse so that if the market were to plunge in one place, they have investments in other places.
– Maxine Gordon
Sources: Bloomberg, CNBC, Yahoo Finance
Photo: Business Insider