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Emerging Markets Primer

Remember, at DeGreen Capital Management, we invest in all the world’s most promising markets and sectors. These include markets in the United States, in other developed countries, and in emerging markets.

Keith DeGreen is the author of The Emerging Markets Book, first published in 2009.

The Role of Emerging Markets in Your Portfolio

There is simply no denying the exciting potential, and impressive historical performance, of the world’s rapidly-growing emerging markets. In fact, while they certainly involve risks, emerging markets may greatly impact portfolio decisions, and long-term portfolio performance, for years to come.

What is an Emerging Market?

  • Eighty percent of the world’s population – about 4 billion people – live and work in emerging market countries such as China, India, Brazil, Russia and many others.
  • Emerging markets already account for more than 40 percent of the world’s economy (GDP), and for more than 75 percent of the world’s economic growth each year!1
  • Emerging markets are transitional economies that have embraced free-market (if not always free political) reforms.
  • Emerging markets contain a massive – and rapidly growing – number of middle class consumers. They all aspire to their version of the American Dream.
  • Emerging markets have adopted many legal and economic reforms to qualify for participation in world trade and investment.
  • Emerging market economic growth rates are often several times greater than growth rates within the U.S. and other developed countries. Meanwhile, emerging market investment returns are often significantly higher than returns within the U.S. and other developed countries. Source: Bloomberg Terminal Services.
  • Meanwhile, the average market volatility of emerging markets is much lower than many U.S. investors believe. Source: Bloomberg Terminal Services.

Risks

While emerging market risks certainly exist, DeGreen Capital Management, LLC, believes that the risks are often overstated here in the U.S. The U.S. perspective is often caused by a lack of familiarity with emerging markets, or to dated perceptions of these markets. Many U.S. investment advisors are not well informed in this area. It is very difficult to remain fully informed in this complex arena. Yet, emerging market risks can be mitigated with professional, expert, investment management.

Nevertheless, several risks are commonly cited in the U.S. with respect to emerging market investing. You will notice that some of these risks may exist right here in the U.S., although – we would hope – to a lesser extent than elsewhere:

  • The risk of nationalization or expropriation of assets or confiscatory taxation;
  • Social, economic and political uncertainty;
  • Dependence on exports and/or the corresponding importance of international trade and commodities prices;
  • Less liquidity of securities markets;
  • Potentially higher rates of inflation (including hyperinflation);
  • Government decisions to discontinue support for economic reform programs and imposition of centrally planned economies;
  • Less stringent laws regarding the fiduciary duties of officers and directors and protection of investors

Should You Invest in Emerging Markets?

Emerging markets may offer you and your family an effective addition to your investment portfolio, as part of your overall investment strategy.

But how much should you invest in emerging markets?

Regardless where, or how you invest, your portfolio allocations should reflect your investment time horizon, your risk tolerance, and your overall investment objectives. Therefore, you may devote a greater or lesser amount of your overall portfolio to equity investing generally, or to emerging markets specifically. Also, keep in mind that several U.S.-traded ETFs now offer access to higher-yielding emerging market bonds.

Our comparative valuation methodology empowers us to rotate into – or out of – specific emerging markets in a disciplined manner.

Learn more about our DeGreen‐Direct Platinum, DeGreen‐Direct and DeGreen‐Plus investment programs.

1Source: IMF at purchasing power parity (PPP)