Investing in emerging markets?

Rewards for investing in emerging markets

Although emerging markets are very volatile, investors discover that the rewards outweigh the risks. A typical example is China, where investors gained 46.27% in five years, while the Dow Jones returned only 1.2% over the same period. This difference in returns between emerging and developed markets is seen worldwide. Thus, in general, maximum growth and returning securities are increasingly being found in emerging economies.

Increase with moderate instability

Investors can easily add emerging market potential to their portfolio with only moderate risk. One can make huge profits by investing all of them in emerging markets like China, but whenever there is a conflict in China or a change in government policy against private investors, it can be a cause for sleepless nights. Temporarily, there are emerging markets that are less risky and that guarantee investment protection. Also, there are professional and financial services companies that help investors choose the right type of investment for a particular market. Moreover, many companies are going worldwide so they offer a favorable exposure to the stock up-and-coming market. As a result, investing in such stocks or ETFs can increase returns from emerging markets with a moderate risk exposure.

Private equity investment in emerging markets

Private equity is a system by which listed and listed companies raise funds privately against public equity in the exchange market. This process works well for listed companies that are considered high risk. Private equity investors acquire a stake in a company and share its return as well as its risk. Like the public equity industry, the private equity industry has its own challenges. The world has enjoyed a decade of cheap financing before the recent global financial crisis. This period ended with the stagnation of the financial markets and the credit crunch. Private equity is on a journey after the industrial crisis, as it struggles to maintain an attractive level of return. As a result, private equity investors are looking for investment opportunities in emerging markets such as Asia, BRIC (Brazil, Russia, India and China) and Africa.

Nevertheless, private equity investors face a number of challenges in this new market. These include unfavorable taxation, and legal and regulatory hurdles. Therefore, investors need to perform thorough diligence before placing their money in these markets. With the dynamics of investing in old and new markets, investors realize that tax issues need to be addressed and the preferred route is building vehicles that invest in offshore jurisdictions like Mauritius. Mauritius has been the preferred choice for channeling private equity investments in Africa and Asia for over a decade due to its various dual tax agreements with emerging countries.

It is clear that emerging markets are very risky; However, the benefits of investing in them can significantly outweigh the risks. At the same time there is an opportunity for investors to take reasonable risks as well as cash in on rapid growth and returns.

The good news is that many emerging markets are increasingly investing in institutional and legal reforms to create a better business environment for foreign direct investors.