In today’s global economy, finding the right vehicle to invest hard-earned money can be a daunting task. Should you invest in Fortune 500 companies? 10-year treasuries bonds? Index funds? Emerging markets? Who can know the right combination of security and return on investment?
In fact, each investor the only person that is going to know what combination of risk and reward is right for them. Ideally, we’re all looking for something that can give returns like Google with the security of US Treasury notes, but that’s just not going to happen. Let’s look at emerging markets in particular, in light of economies across the globe growing and change by the day.
What’s the risk difference between investing in the US market that continues to rack up debt while engaging in a trade war with China, as opposed to investing in Latin America while they fortify and grow their trade position with China? Emerging markets are an enticing investment avenue, but are the risks worth the reward?
Risk or Reward?
All investing comes with risks, and higher risks generally offer a greater potential reward. Such is the case with emerging markets vs. developed markets. Developed markets like those found in the US, UK, German, Australia, and Japan will have measurable benchmarks like highly developed capital markets, high levels of liquidity, high per capita income, and authoritative regulatory bodies.
In contrast, emerging markets are in the process of growth and development, hoping to attain such benchmarks. Some countries, like South Korea or Brazil, that fall in the emerging market category may have already achieved some of these goals and need time for their market to mature domestically, while others aren’t quite as far along.
According to a recent evaluation, four of the top six economies among emerging markets are found in Asia. China, the Philippines, Thailand, and Malaysia all offer tremendous investment opportunity due to their sound economic fundamentals, industrial infrastructure (especially as it involves IT companies), and relative political stability. Asia’s upside is especially enticing in light of the regions’ association to global technology markets.
Along with strong investment potential, there are notable risks in Asia’s emerging markets. The most prominent danger is the growing tension between China and the US. It seems like every volatile move in economies across the globe can be tied in some way to something that happened between the US and China.
Another prominent risk in Asian markets is the looming threat of nuclear war continually being broadcast out of North Korea. A final risk to consider when looking at Asia is that every election cycle can cause immediate policy changes that bring progress to a grinding halt.