The rewards of investing in emerging markets
As emerging markets are highly volatile, investors find that the rewards outweigh the risks. A typical example is China, where investors have brought 46.27% return for five years, while the Dow Jones has returned only 1.2% for the same period. This difference in return between emerging and developed markets can be seen worldwide. Thus, in general, the highest growth and return on securities are increasingly found in emerging economies.
Growth with moderate volatility
Investors can easily add emerging market potential to their portfolio by taking only moderate risks. One can make huge profits by investing all one’s investments in emerging markets such as China, but this can lead to sleepless nights when there are disputes or changes in government policy against private investors in China. In the future, 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 choose the right type of investment in specific markets. In addition, many companies go global, which is why their shares offer a favorable exposure to emerging markets. Therefore, investing in such stocks or ETFs can increase returns from emerging markets with moderate risk exposure.
Private equity investments in emerging markets
Private equity is a method by which companies listed on the stock exchange or on the stock exchange raise funds privately, as opposed to public capital on stock markets. This mechanism works well for companies that are not included in the list, whose risk is considered high. Private equity investors acquire stakes in a company and share its returns as well as risks. Like the public industry, the private investment industry has its own share of challenges. Before the recent global financial crisis, the world enjoyed a decade of cheap financing. This period ended with the freezing of financial markets, which led to a credit crunch. The private equity industry is going through a 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, the BRICs (Brazil, Russia, India and China) and Africa.
Nevertheless, private investors face a number of challenges in these new markets. These include adverse taxation and legal and regulatory barriers. Therefore, investors must conduct a thorough examination before placing their money on these markets. With the mobility of investment between old and new markets, investors are realizing that tax issues need to be addressed, and the preferred route is to structure funds to hold investments in offshore jurisdictions such as Mauritius. Mauritius has been the most preferred jurisdiction to target private equity investment in Africa and Asia over the past decade due to various double tax treaty agreements with emerging countries.
It is obvious that emerging markets are very risky; however, the benefits of investing in them can far outweigh the risks. There are opportunities for investors to benefit 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 a better business environment for foreign direct investors.