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Strong Investment Opportunities in Emerging Markets


How can you explore investment opportunities in emerging markets without exposing to huge risk?

The quest for value takes investors across a whole range of asset classes. The problem, most of the times, is that what comprises of an attractive story today may cease to be that good tomorrow. This is exactly why investors need to pick an effective combination of growth and value. It is the only way to ensure that the investment will yield value and remain attractive over an extended period.

Therefore, we decided to train our guns on the highly attractive and talked about Emerging Markets and shortlist the rising investment opportunities in emerging markets. These trades are not only the toast of the hour but they promise sustainable long-term gains.

Growth is the key focus of trade in emerging markets. Investors must understand that most of the emerging markets like India, Russia, Brazil and Nigeria are all developing economies. This, therefore, makes them a hub of strong and sustained developing opportunities.

Whether you focus on financial, technological or even infrastructure driven investment opportunities in these markets, the alternatives are many. But the concern is along with the great potential; they are also extremely risky markets.

So here is a detailed analysis of the top risk and rewards that you can expect from the emerging market space.

The Top Emerging Markets to Invest

Economic Growth Pointing Northwards

Growth like we already mentioned is a key focus area for investments in emerging markets. The reason is most of the economies are still being developed and teeming with opportunities that can soak up more funds and thereby generate greater opportunities. If you see rather active and flourishing economies like India and Brazil right from agriculture to industries, there are many growth platforms you could bet on.

The general back of the hand calculation says the developing markets grow at least double the pace of developed markets. Case in point is the fact that while US and Europe’s GDP is growing at 1-2%, economies like India, China are growing close to 6%. The relative growth for your investment opportunities in emerging markets, therefore, increases many times in sync with this.

The only problems that investors might have to contend with are associated issues of corruption, implementation delays and red-tapism. However, like all astute investors, we expect you to price in these uncertainties before committing cash. Weigh the pros and cons of betting on a specific market in a detailed manner.

Low Labor & Material Cost

So many times you would notice a lot of big and successful brands have their manufacturing units in some or other developing nation or an emerging market like India, Brazil and the like. Have you wondered why? Well, the reason is pretty simple. These markets have easy availability of cheap labor, and the cost of materials is also much lesser here. As a result, they are able to easily offer a much higher return on investment that you make towards setting up your manufacturing unit.

The low labor and material cost also ensures that you are able to provide a much better quality product for relatively lesser expense. This means that you are gaining good will in terms of providing a higher quality product but keeping competition away by quoting a lesser rate. Overall therefore by exploring investment opportunities in emerging market you are able to capitalize on

  • Profit margins
  • Product quality
  • Cheaper prices
  • Lower cost of production

As a result, you are able to book better returns on the overall investment that you make in these markets.

Infrastructure Cost Cheaper

While developed economies have several additional taxes in places like payroll taxes, unemployment taxes and the like, most emerging markets do not have such provisions. The overall cost of infrastructure too is much lesser than what you have in developed countries. This lower overhead cost essentially means the input cost of any investment and taking forward that investment is much lesser in emerging markets.

As a result of this, the investment opportunities in emerging market always yield a much higher rate of return and a relatively stronger profit margin, irrespective of the industry that you might bet on. In purely mathematical terms, that would be termed as a strong investment.

Concern Areas

However, there are few concerns nevertheless when you are looking at investment opportunities in emerging markets. The biggest worry more often than not is the possible currency risk that is associated with most of these emerging economies. The problem is that the inflation rate is relatively higher and that makes the currency vulnerable to depreciation at regular intervals. This is exactly why if you are investing in emerging markets, you must hedge your risk and limit your exposure to a relatively manageable amount. Also if you invest for a longer duration, this factor becomes a lot less important than the near-term.

As an investor, you must, however, exercise discretion and do proper research before committing your money. For example markets like India is a relatively better bet than say Argentina or Venezuela. In these two Latin American countries, the finances are so recklessly managed that it often results in radical currency changes.

So, depending on the type of risk profile you opt for, you need to choose the emerging market you want to invest in. This is perhaps the most practical way to manage your investment risk.

It would be, therefore, safe to conclude that if you are looking for a different investment destination with a promise of maximum returns, emerging markets provide great opportunities.

But at the same time, while you are looking at investment opportunities in emerging markets, you must be careful to hedge your risks appropriately. Deep research and insight often is the key to successful investment.

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"Whether you think you can, or you think you cannot, you are right." - Henry Ford

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