Can you earn great rewards by investing in emerging markets? It’s a question that you probably ought to be posing if you’re looking for the best way to grow the money you have available. But, in order to get the best answer, it’s important to do your homework.You need to understand what’s really meant by ‘emerging markets’ and what factors you need to weigh up before making an investment decision.
Where are the emerging markets?
Don’t be fooled into thinking that emerging markets are poor or developing countries, this is a common misconception. Emerging markets are those which are growing at a rapid rate. They’re often in the process of industrialisation and are seeing a big growth in their consumer market. Countries such as Brazil, Russia, India and China (the so-called BRIC countries) are often held up as the most common examples of emerging countries – none of which should really be categorised as poor. Typically, these countries have a younger population – with plenty of people at working age – and a rapidly growing middle class to entrench growth in the middle to long term too.
Does investing in emerging markets work?
The theory goes that countries that are enjoying GDP growth will also also deliver decent stock market returns too. That isn’t a hard and fast rule, however, and you shouldn’t think that this is a guarantee.
In recent times, however, investing in emerging markets has been lucrative. The Telegraph, for example, published research from Prudential which found that someone who had invested £250 a month in emerging markets in the past two decades could now be £30,000 better off than someone
who had invested more broadly. Emerging markets were also quicker to recover from the financial crisis of a decade ago, picking up growth as more established countries stumbled.
The period between 2014 and 2017 did see emerging markets struggle – causing some people to question their continued strength–but the long term gains have been impressive and recent weeks and months have been characterised by a return to growth for emerging market funds.
Clearly there’s some volatility – and you need to be aware of issues as wide-ranging as the Brazilian domestic political scene to the Chinese consumer market – but the capacity for growth is still strong, especially compared to a protectionist United States and a European Union dealing with the exit of the United Kingdom and a refugee crisis.
How do you invest in emerging markets?
There’s no one set way to ‘invest in emerging markets’ – leaving you some flexibility to add to your portfolio in a way that best suits your circumstances. Some investors choose to put their money into a fund that centres on one specific country or region (such as JP Morgan Indian or Aberdeen Asia Pacific), some focus on funds that specialize in emerging markets as a whole (such as M&G Global Emerging Markets) and other people choose to trade in Forex, a way in which you can make money from market volatility in either direction if you can pick the right currency pair at the right time.
Whatever works for you, it makes sense to at least consider emerging markets and how you might tap into their growth potential as part of a diverse investment portfolio.
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