Given the global economy in recent years, emerging markets have been the focus of various international investors who are seeking higher returns.
New Information and Communication Technologies have made it possible for companies worldwide to invest in different markets without the need for an expensive network of subsidiaries. Fundamentally, this is achieved by using new data connectivity devices that facilitate a large number of real-time transactions from anywhere in the world.
Now, what exactly are emerging markets? Why have they become a focal point for investors around the world? What are the advantages and disadvantages of investing in these types of markets?
Surely, if you’re not up to date, you might be asking yourself all these questions. And if you’re considering investing in them, you might be asking these questions too.
A simple decision can distinguish a successful investment from an unsuccessful one. Having specialized advisors who can help you understand what’s best for your company is crucial to avoid wasting our money.
One of the most reliable options is Evans Sternau CPA, a global network of committed CPAs and accountants that focuses on providing customer service strategies and resolving industry challenges.
Now, let’s get to the topic: What are emerging markets?
Emerging markets refer to a group of diverse countries that are in various stages of development and growth, generating interest among global investors. These countries are not considered developed, but they are in a transitional phase. A common feature of these markets is that they represent a significant portion of the world’s population, which fuels consumer capacity.
It’s also important to note that for a country to be considered an emerging economy, the goods on which its markets are established must be considered. These goods are differentiated by their significant international value and global scarcity, for example: natural resources like minerals, fuels, and raw materials of natural origin.
Characteristics of Emerging Economies
- Emerging countries are often characterized by having a young and expanding population, enabling a considerable local workforce.
- They are identified by significant changes in their social structure, as well as political instability.
- They have the potential for economic growth.
- They have volatile currencies that can fluctuate frequently.
- They possess a progressive domestic economy, marked by increased consumption of all types of products and services by their population.
- They have policies that promote and favor the internationalization of products and services, facilitating their entry into the global economy.
- They are in a laborious phase of industrialization and economic opening.
Advantages of Investing in an Emerging Market
In broad terms, these markets, due to their distance or lack of investor knowledge, have not yet been fully exploited. Therefore, they represent opportunities that cannot be ignored.
Some of the most significant advantages of investing include:
- Growing Populations The demographics of countries with emerging markets are expanding due to exploring new models of wealth associated with a significant baby boom. More people, more business.
- Increased Consumption Growth will no longer only come from exporting to underdeveloped nations. It will now come from the rise in per capita income.
- Strong Internationalization Both in terms of receiving investments and in terms of the globalization of economic relations of national companies.
- Increased Productivity Linked to technological innovations and the boost to infrastructure.
- High GDP Growth Rates Emerging countries have high GDP growth rates, far exceeding those of more developed economies. Additionally, they often have lower debt levels compared to major economies.
If you’re interested in knowing the specific benefits this could bring to your company, working with a “small business CPA near me” can clarify your doubts and help you make the best investment without unnecessary risks.
How to Invest in Emerging Markets
There are several ways to invest in emerging markets. One option is to invest in emerging companies or debts, while another focuses on direct investment in financial products such as indexed investment funds and ETFs.
Buying Emerging Market Stocks or Bonds
Directly buying stocks from emerging markets is one of the more feasible options, especially if it’s done with large companies.
Another option is to invest in the debt of an emerging country or a company that operates in that region. This is known as investing in emerging fixed income.
Investment Funds: Indexed and ETFs
There are multiple funds to invest in emerging markets. We can classify them into these types:
Global Emerging Funds: This is an investment made in a large portion of emerging markets in a diversified way.
Regional or Country Emerging Funds: Investment is made in investment funds of specific countries, such as Asian funds, for example.
Market Capitalization: Investment is based on the size of companies’ capitalization.
The most practical way to invest globally in emerging markets is through an indexed fund based on a benchmark index. In other words, the goal is to replicate the exact behavior of a specific stock index.
There’s also the possibility to direct the investment to a much more varied and specialized offer like ETFs (Exchange-Traded Funds). ETFs are more versatile and allow for investment in specific sectors and market niches.
In conclusion, investing in emerging markets is full of good opportunities, but planning is essential to avoid being subjected to counterproductive business pressures.
