What are emerging markets?
Emerging markets or emerging economies are those which are currently going a period of rapid industialisation and growth, coupled with an upsurge in business activity. The seven largest emerging economies by GDP are China, Brazil, Russia, India, Mexico, Indonesia, and Turkey. However, many other markets can also classified as emerging - for example, investments in African economies are becoming more widespread, too.
Because they are growing and changing rapidly, emerging markets can seem like an attractive prospect to investors who are looking for long-term growth, as these markets are predicted to be major economic players later on in the 21st century.
Why invest in an emerging market fund ISA?
- Emerging economies can offer the potential for long-term growth as new economies take centre stage in the worlds' financial markets.
- Emerging markets can be an exciting way to invest in new, up-and-coming businesses across the world - if you're already an experienced investor, they can offer an interesting addition to your portfolio.
- Well-researched emerging market funds have the potential to inject cash into economies where it's most needed. This can help to stimulate local job creation, encourage entrepreneurship, and increase standards of living.
Points to bear in mind when investing in emerging market fund ISAs…
- As well as offering higher potential returns, emerging markets are classed as higher risk investments than those in developed markets. Whether or not emerging market ISAs are right for you will depend on your investment goals and appetite for risk. Emerging markets can be riskier due to fewer local regulations.
- Don't assume that all emerging markets are the same - do your research. As economist Nouriel Roubini has pointed out, emerging markets should not be lumped together in terms of growth.
- As well as developing financially, many emerging economies are simultaneously going through major socio-political changes. There's always a risk that changes to the prevailing political climate or social structure could lead to economic instability and potential loss for investors. Change creates risk, but it also creates opportunity, both for businesspeople in emerging markets and those who want to invest in them.
- Not all emerging economies have a good track record when it comes to things like enforcing workplace health and safety regulations, upholding human rights, or preventing political corruption.
- Because you'll be investing internationally, it's important to bear in mind that your returns will be subject to fluctuations both in your own currency and the currency of the market you're investing in.