Emerging markets are countries that are experiencing rapid economic growth and industrialization but that do not have “fully developed” economies. The four largest emerging markets are “BRIC” countries, i.e., Brazil, Russia, India, and China. Also, Cambodia, Indonesia, Vietnam, Egypt, Turkey, and South Africa are emerging markets expected to rise to prominence over the coming years. As of 2021, about 6.2 billion people (a whopping 78% of the world’s population) lived in emerging market countries. Since these markets are growing rapidly, investing in them can have great upsides.
Invest in Stocks
Some international stocks trade on U.S. stock exchanges, regularly through American depositary receipts (ADRs). An ADR represents one or more shares of a foreign stock and is bought and sold like a domestic stock. For example, Diageo Plc based in the UK trades under the NYSE symbol DEO. Another example is Teva Pharmaceutical, based in Tel Aviv, which trades on the NYSE as TEVA. Last, Infosys Limited is a large India-based IT company that trades under the NYSE as INFY. These are simply a few examples of the many available out there.
Invest in Market Bonds
When you buy emerging market bonds you are essentially becoming a creditor. Bonds are issued by governments or corporations in emerging market countries, of which you will receive fixed interest payments until the bond reaches its maturity date, at which point you will get your principal back.
Invest in mutual funds and ETFs
When you buy emerging market bonds you are essentially becoming a creditor. Bonds are issued by governments or corporations in emerging market countries, of which you will receive fixed interest payments until the bond reaches its maturity date, at which point you will get your principal back.
Invest in mutual funds and ETFs
By investing in mutual funds and ETF’s, you receive a basket of securities – often hundreds or more. This reduces your risk compared to buying individual stocks or bonds. There are funds that invest broadly in emerging markets, like the Vanguard FTSE Emerging Markets ETF or you can invest in a fund that focuses on a specific country or segment of emerging markets. For instance, the VanEck Russia ETF invests in 29 Russia-based holdings.
Invest in REITs
Last, you might consider investing in an emerging market REIT or real estate investment trust. It is similar in principle to investing in a real-estate-focused mutual fund or ETF.
Before jumping into the world of emerging market investing, it is important to understand the risks:
Political risk – Emerging markets tend to have less political stability. Political instability or corruption can impede economic progress and reduce overall profitability.
Economic risk – Because emerging markets are growing at a rapid pace, there may be an imbalance of labor or materials (e.g., shortages), inflation or deflation, unstable monetary policy, or insufficient regulation that may threaten growth.
Currency risk – In emerging market countries, currencies are often unstable, exposing you to risk as an investor.