As a free-market economic skeptic, prior to my readings, I felt that investing in emerging markets is more self serving and exploitative than helping people out of poverty. There is a lot of potential for abuse (of locals) as well as political risks (jingoism and xenophobia) and financial risks they face. Uncertainty of ROI is a challenge.
However, as I go through the course, I now have a change of perspective. Emerging markets are characterized by diversity, volatility and rapid economic growth. With untapped natural and human resources, and demand for consumer goods they create a win-win opportunity: foreign investors from developed countries can profit from economic growth by investing in capital and technology, and the emerging economies can raise their standard of living by modernizing their industrial and agricultural production. Emerging economies derive a number of benefits from foreign investments. They improve their:
Balance of payments
Increase their exports and earn more hard currencies Reduce imports
Reduce unemployment and
Improve their fiscal position and access to higher technologies.
However, they suffer when foreign capital comes in and they suffer again when it leaves. I see 3 strategic reasons for investing in emerging markets: Diversification: As countries remove capital controls and increase trade openness, the correlation of emerging markets has gradually increased to about .75 with US equities. But, despite their volatility, by adding emerging markets to their portfolio, investors can create more efficient...