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Thinking of investing in emerging markets? Here's what you should know

One way to make the most of savings you'd like to grow is by tapping into new investment markets. This could mean looking abroad, in particular at countries that drive global growth. Today, emerging markets in developing nations are poised to do just this – become the world’s new growth engines. As with any financial investment, however, it's important to measure and manage your risks. Here’s a breakdown on emerging markets and what investing in them means for you.

What are emerging markets?

The term emerging markets was first used in 1981 by the International Finance Corporation, to promote the launch of mutual fund investments in developing countries. Now, the term is used to describe developing countries or economies with a high-growth potential and low to middle per capita income. Examples include Korea, Turkey and Indonesia, as outlined in the Morgan Stanley emerging markets index.

Why is this important? For starters, a 2012 study by HSBC found that “consumption in emerging countries could account for almost two-thirds of the global total in 2050” – in other words, their economies will carry weight in the global economy.

Are their growth rates stable?

As with most business cycles, there will be instability. The recent global stock market turbulence has shown that many of these developing countries aren't immune to fluctuations in the world economy. Despite this, many continue to show positive signs of growth. Countries such as the Philippines continue to expand at 6% each year while Myanmar is set to grow at more than 8%, according to Bloomberg.

If you decide to invest, remember to speak to a registered financial advisor who specialises in emerging markets. They'll be aware of any sudden policy changes that could affect growth in the country you’re investing in.

What affects your return?

Currency fluctuations in emerging markets aren't uncommon. This often leads to inflation and volatility – how much a given asset moves up or down in value – which could impact the rates on your next international money transfer for investment. Other factors that may affect your return include political uncertainty and the lack of governing financial institutions or regulations.

As an investor, you might want to use a foreign exchange broker who specialises in emerging markets. They'll be able to give you accurate price quotes and help you negotiate the best rates. Find the right one for you today using our transparent broker comparison tool.

 

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