The benefits of investing in emerging markets
As emerging markets are very volatile, investors find that the benefits outweigh the risks. A prime example is China where investors returned 46.27% over five years, while the Dow Jones returned just 1.2% over the same period. This difference in performance between emerging and developed markets is visible on a global scale. Thus, in general, the securities with the highest growth and highest yield are increasingly found in emerging economies.
Moderate volatility growth
Investors can easily add the potential of emerging markets to their portfolio by taking only moderate risk. One can reap huge profits by investing all of one's investments in emerging markets like China, but it can cause sleepless nights any time there is a skirmish in China or a change in government policy against them. private investors. Providentially, there are emerging markets that are less risky and that guarantee investment protection. In addition, there are professionals and financial services companies that help investors select the right type of investment in specific markets. In addition, many companies are going global and their stocks offer favorable exposure to emerging markets. Therefore, investing in such stocks or ETFs can increase emerging market returns with moderate risk exposure.
Investment in Private Equity in emerging markets
Private equity is a method by which listed and unlisted companies raise funds privately rather than public capital in the forex markets. This mechanism works well for unlisted companies that are perceived to be at high risk. Private equity investors take equity stakes in a company and share its returns and risks. Just like the private equity industry, the private equity industry has its share of challenges. Before the recent global financial crisis, the world enjoyed a decade of cheap financing. This period ended with a freeze in the financial markets which resulted in a credit crunch. The private equity sector is going through the aftermath of the crisis, as it struggles to maintain an attractive level of return. As a result, private equity investors seek investment opportunities in emerging markets such as Asia, the BRICs (Brazil, Russia, India and China) and Africa.
Nonetheless, private equity investors face a number of challenges in these new markets. These include unfavorable taxation and legal and regulatory hurdles. Therefore, investors should perform thorough due diligence before investing their money in these markets. With the mobility of investments between old and new markets, investors are realizing that tax issues need to be addressed and the preferred route is to structure investment holding vehicles in offshore jurisdictions such as Mauritius. Mauritius being the most preferred jurisdiction for the channeling of private equity investments in Africa and Asia over the last decade due to its various double taxation agreements with emerging countries.
It is obvious that emerging markets are very risky; however, the rewards of investing in it can far outweigh the risks. Investors have the opportunity to profit from rapid growth and returns while taking reasonable risks.
The good news is that many emerging markets are increasingly investing in institutional and legal reforms to create better business environments for foreign direct investors.