Investing in international shares offers a number of categories to consider. Global, regional, developed and emerging markets.
Each of these has its own unique risks and associated potential returns.
In a strict sense, an emerging market is defined as a share market that is in a state of growth. Such markets could include: China, Brazil, South Korea, Taiwan, Israel, Mexico. These countries can be considered as being in a phase of expansion.
There are a number of advantages that emerging markets can provide , among them, diversification. This can assist to reduce the risk of your total investment portfolio by offsetting the “ups and downs” of returns commonly associated with share investment. When other markets in developed countries are showing poorer returns, emerging market investment can help to support your investment portfolio value.
Emerging markets shares are characterised by rapid rates of growth during their expansion phase.
One emerging market fund manager has recently reported a 32.91% return over the last 12 months and a 20.66% annualised return over the last
In contrast, emerging market investors should be aware of a number of challenges. Typically, emerging market share prices can have a considerably greater range of returns than other share markets.
Large price swings over various parts of the market cycle can be experienced.
The same fund also reports a 4.92% annualised return over the last
There is also a greater potential for market surprises in the form of political instability, as well as economic turbulence. A primary example being the Russian share market crash in the late 90’s, as well as some of the South American economies boom in the earlier part of that decade.
Where political stability affects variations in currency value, this can also affect share values. Liquidity, being the ability to cash in your investment, and transparency, knowing how a company is spending your investment, are also two other factors that need to be considered when contemplating emerging market stock investments.
Research on emerging market stocks can also be challenging in terms of access to relevant and true information.
While investing in emerging stocks does provide attractive risk-return opportunities, it is recommended that a professional investment adviser is utilised to gain exposure to them, simply due to the challenges highlighted above.
A number of fund managers in New Zealand and Australia promote emerging market and international regional share funds in New Zealand.
Any inclusion of emerging market funds or regional international share funds in your portfolio should be based on a full understanding of your own investment goals.
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