Investing in Emerging Markets

With astute asset allocation and sensible diversification being fundamental principles of successful investment and long term wealth creation, one of the key challenges for investors is having an awareness and understanding of what's available to invest in, and the level of risk and return you could realistically expect over time from such investments.

By InvestSMART · 1 Apr 2014

By InvestSMART ·
1 Apr 2014

Comments

One asset class that’s relatively overlooked by Australian investors, when compared to say, Australian shares or property, is investing in the shares of companies based, and conducting most or all of their business, in so-called ‘emerging markets’.

Definitionally, it’s a bit of a rubbery term, but generally, an emerging market (or emerging economy) is one considered to be in a state of generally rapid growth and industrialisation, and having a low- to middle- per capital income as measured by the World Bank.

Investment intelligence and index provider MSCI currently classifies 21 nations as emerging markets, with the list including China, India, Korea, Thailand, Taiwan, Russia, Turkey, Greece, Hungary, South Africa, Brazil, Chile and Mexico. MSCI’s Emerging Markets index covers over 800 securities across these 21 nations, and represents approximately 11% of world market capitalisation.

Over the last five years, the MSCI Emerging Market index has recorded an annualised return of 11.31% over five years, or 7.08% over 10 years. MSCI’s South East Asia index has shown an annualised return of 19.34% over five years, and 9.31% over 10 years (as at 21 March 2014).*

According to ipac financial planner Paul Clitheroe, “The easiest way to invest in emerging markets is through a managed fund. Be warned though, high returns means high risk, and emerging markets can be volatile – in fact there have been serious emerging market losses in the last three years.

“It pays to only devote a small part to your portfolio to emerging markets, due to the higher risk – however it can be a valuable and viable asset class for investors taking a long term approach”, Clitheroe said.

* http://www.msci.com/products/indices/country_and_regional/em/performance.html

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What are emerging markets in the context of investing?

Emerging markets refer to countries that are experiencing rapid growth and industrialization, typically with low- to middle-income levels as defined by the World Bank. These markets offer unique investment opportunities due to their potential for high returns.

Which countries are classified as emerging markets by MSCI?

MSCI classifies 21 nations as emerging markets, including China, India, Korea, Thailand, Taiwan, Russia, Turkey, Greece, Hungary, South Africa, Brazil, Chile, and Mexico, among others.

How has the MSCI Emerging Markets Index performed in recent years?

The MSCI Emerging Markets Index has shown an annualized return of 11.31% over the last five years and 7.08% over the last ten years, indicating significant growth potential for investors.

What is the easiest way to invest in emerging markets?

According to financial planner Paul Clitheroe, the easiest way to invest in emerging markets is through a managed fund, which allows investors to gain exposure to these markets without directly purchasing individual stocks.

What are the risks associated with investing in emerging markets?

Investing in emerging markets can be volatile and high-risk, with potential for significant losses. It's recommended to allocate only a small portion of your portfolio to these markets and to adopt a long-term investment approach.

Why should investors consider adding emerging markets to their portfolio?

Emerging markets can be a valuable asset class for investors seeking long-term growth, as they offer the potential for high returns due to rapid economic development and industrialization.

How does the performance of the MSCI South East Asia Index compare to the broader Emerging Markets Index?

The MSCI South East Asia Index has outperformed the broader Emerging Markets Index, with an annualized return of 19.34% over five years and 9.31% over ten years, highlighting the region's strong growth potential.

What percentage of the world market capitalization is represented by the MSCI Emerging Markets Index?

The MSCI Emerging Markets Index represents approximately 11% of the world market capitalization, showcasing its significant role in the global investment landscape.