Investing In Emerging Markets
Introduction An increasing number of professionals of all nationalities have been moving and working abroad in the last decade. Whether you are a young executive or a high net worth individual with a diversified portfolio of global assets, you will have specific financial requirements and objectives. Offshore financial products and services can help you achieve financial security and provide you with the quality of life you require as an expatriate or international investor. Investing in international accounts is no longer the premise of the rich and famous; all expatriates living abroad may now enjoy flexibility, among other benefits, by investing their money overseas. The offshore financial industry has become more popular and financial institutions from around the world have entered the offshore market as a result of the high demand. There are now many providers that offer a broad range of services ranging from saving schemes to pension and retirement plans and wealth management accounts to lump sum investment products. Over the years, deVere has developed strong partnerships with some of the world’s leading investment houses and insurance companies, all of which offer some of the most competitive products in the marketplace and a high level of protection for the investor. In this guide, we aim to provide you with essential information on effective investing within emerging markets as an international investor or expatriate.
Emerging Markets in Context Emerging Markets have often left investors in a conundrum about whether to invest within them or not. However, in the past 10 years emerging equities have frequently outperformed those in developed markets after evolving through economical and political boundaries. Although the global downturn took its toll on equities across the globe, emerging markets still continued to record growth in 2008. It is also predicted that it will be the emerging economies to lead the world out of the downturn. This should not come as a big surprise, after all, in 2007 the growth rate of emerging market economies was 8.3% compared to only 2.7% in advanced economies. In addition in the mid 1990’s, emerging economies contributed just 4% of world growth, now their market contribution is over 50% and is predicted to rise.
Which Emerging Market? The emerging market of India has a different background to other emerging markets as their economy is based on the service industry and the growing number of those joining the middle classes. Other emerging economies such as Brazil and Russia are primarily commodity driven. India is currently one of the top countries to be contributing most into global growth. With the strong performance in the Indian equity markets during the downturn the average daily turnover has grown to over 5 times the 2002 daily figure of $750 million to $3.6 billion. As a result the number of largecap stocks available to domestic and foreign investors has soared. The 2009 election in India improved the country’s prospects in attracting foreign investors to
Investing In Emerging Markets
Indian equities. The new government is currently spending 4% of the country’s GDP on improving infrastructure and transport links in the major cities and telecommunications, schools and hospitals. The Chinese government are also spending in order to improve infrastructure in the biggest country in the world, they are currently spending 9% of GDP on this massive project. The average income within India is also rising and with this will come greater financial literacy resulting in more domestic investments within the country. Investors who choose India for their money could potentially see good growth within their funds. The major players in the Sensex including ICICI Bank, and Tata Motors have seen shares more than double this year with the economy growing 7% in the third quarter of 2009 fuelled by manufacturing and services. Brazil is the fifth largest country in the world with 12% of the world’s fresh water and huge amounts of natural resources. It is a massive producer of agricultural crops and livestock and meets most of the population’s energy requirements using hydropower. In addition, the majority of the country’s cars run on locally produced ethanol which is derived from sugar cane. Today Brazil is the result of two decades of reform which has led to a stable and democratic government which has improved the financial system with a greater emphasis on tax and inflation rates. Even during the downturn Brazil did not endure the business and consumer distress to affect most of the world. The South American country has been propelled to success by exports of both agricultural and commodities to meet demand from Asian countries such as India and China. Recent discoveries of oil and gas have also propelled the country into global demand and the country is the largest producer of ethanol, sugar, beef and coffee.
Investing In Emerging Markets
Why Invest? Analysts expect that there will be a rebound of global economic activity in 2010 with developed economies predicted to show a GDP growth of 1.3% compared to the 5.5% growth forecast for the emerging economies. In terms of absolute GDP the emerging markets group is now larger than the US and is expected to keep growing in the coming years. In addition, the population in emerging economies is expected to grow five times faster than any developed country. It is predicted that by 2030 more than one billion people in emerging economies will have joined the consumer middle class of spenders. The UN estimates that by 2017, 17 of the world’s 20 largest cities will be in emerging markets as urbanisation takes hold. This will mean growth in energy, consumer goods, commodities and telecommunications. GDP figures also show that economic power has shifted from west to east. In 2002 China’s total GDP was 13% of that of the US. At the end of last year this had increased to 33% and is predicted to increase 47.5% by the end of 2014. Even though emerging markets are deemed more volatile, the past 10 years of portfolio investment exposure has seen a similar level of volatility as developed markets, but has provided far better returns in that time. In the past decade the MSCI Emerging Markets Index has massively outperformed its developed market counterpart.
Investment Options You are able to gain varying degrees of exposure to emerging markets through investment funds as a significant or minor proportion of your fund. Although emerging market currencies have made gains against the dollar and sterling in recent months it would be wise to be slightly cautious when investing in income funds or cash equities as there is no guarantee that this will continue throughout the coming months. Manufacturing and commodities are the biggest strengths in emerging markets and are set to grow throughout 2010 in India, Brazil and China.
Investing In Emerging Markets
For those who wish to invest in China there are investment options that allow you to indirectly invest in China through another country, for example, Hong Kong. Fidelity’s Anthony Bolton and executives from HSBC have announced plans to move operations to Hong Kong in 2010 to run a China investment portfolio. Another way to invest in both China and India without any direct exposure is to invest into the region but focus on countries like Hong Kong, Singapore and Malaysia which are well developed countries. This option is preferred by Aberdeen which holds 22% of the portfolio in Hong Kong, 20% in Singapore and only 5% directly in China. How much money you should invest within the emerging markets depends entirely on your investment objectives and your appetite for investment risk. If you would like more information on any emerging market funds, please contact a financial consultant by contacting us on info@devere-group.com. The advice we provide is free and without obligation.
Investing In Emerging Markets
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