For those interested in getting involved in investing, the stock market is a logical place to start. However, the earning potential of domestic companies isn’t quite what it used to be.
As many U.S. stock prices continue yo-yoing from the recession and interest rates at an all-time low, many investors are looking to invest their money abroad in hopes of earning bigger returns. If domestic stocks aren’t your cup of tea, you are looking to gain exposure in a developing region, or you are simply interested in diversifying your portfolio, then the emerging markets may be your ticket to investing success.
Many parts of the world are starting to catch up to some of the more economically developed areas, such as the United States and Europe. These countries and areas are considered markets that are emerging or on the verge of emerging (if that;s even a category) because they are poised to grow in many different sectors, including energy production, infrastructure, utilities, medical care, education, industry, finance, etc. This immense potential for growth makes emerging markets a great investment option for those investors who are willing to take a greater risk for the chance of a bigger reward by putting money behind a company in a less established country.
Stocks with Potential
If the prospect of investing in emerging markets sounds intriguing, there are a number of different investment vehicles to consider. One of the most popular is to buy stock in companies in developing areas. This option provides direct exposure to the returns and has a high potential for long-term growth if the company is successful. Companies such as Alibaba.com, Foxconn and PetroChina are some current popular picks in the emerging markets. However, investing in one of these companies — or others — comes with some extra risk since there is no guarantee that a company will grow and flourish in the emerging market. If you choose to take this investment route, look for companies that stand to provide a valuable resource, product, or service to a developing nation.
Diving Into Emerging Markets ETF
Another investing option in emerging markets comes in the form of an exchange traded fund (ETF). These funds are similar to mutual funds in that they are professionally managed and hold a large number of shares in several different companies, however, unlike mutual funds, they can be traded like stocks on a security exchange. An emerging market ETF is often run by a financial institution, such as Vanguard or iShare, that does a large amount of research and picks the companies with the most potential for growth. Some examples of these ETFs include: First Trust BICK Index Fund (BICK), Global X Russell Emerging Mrkts Growth ETF (EMGX), Market Vectors India Small-Cap ETF (SCIF), and Vanguard Emerging Mrkts ETF (VWO). Again, the drawback of investing in these funds is that they can be more volatile than some of their domestic counterparts.
Mutual Funds
In some cases, investors can also get involved with mutual funds that engage in emerging market investment activity. Mutual funds are slightly different from ETF’s because they are only traded once a day – typically at the end of the trading day. There aren’t as many mutual funds available in these markets are there are ETFs or individual stocks, but there are still some very viable and potentially profitable choices if you are interested in pursuing an emerging market mutual fund. Some of the top performers in the past year include, ING Emerging Countries Q (NACQX), Nicholas-Applegate Emerging Markets II (NAGDX), Wasatch Emerging Market Small Cap (WAEMX), and Aberdeen Emerging Markets B (GEGBX).
Investing in the BRIC
One of the most well-known and popular emerging markets for investors is the BRIC, an acronym that refers to Brazil, Russia, India, and China. These four countries make up more than 25 percent of the world’s land and 40 percent of the world’s population. The BRIC is a powerhouse of these markets that is expected to experience a significant amount of economic growth in the coming years, making investment opportunities in these countries plentiful, and likely well participated in, and potentially lucrative.
Whether you choose to invest in the BRIC or put your money into another growing country, such as Mexico or South Korea, there are plenty of investment opportunities in emerging markets. Just make sure that before choosing any investment, you thoroughly research the companies, options, and markets that you are considering. And remember, investing in an one of these can be risky, but sometimes big risks come with big rewards.