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Mr. Hassan has a fairly large portfolio of stocks and bonds of Pakistani companies. In a social gathering he came across a financial planner who suggests Mr. Hassan to enlarge his portfolio by investing in emerging market stocks. Discuss how this investment can be fruitful or dead end for Mr. Hassan?
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Emerging markets are those of lesser-developed countries, which are beginning to experience rapid economic growth and liberalization. Examples of emerging market countries include China, India, and Mexico. Generally, these countries are described by a growing population experiencing a substantial increase in living standards and income, rapid economic growth, and a relatively stable currency.
Often, emerging market countries impose strict limits on foreign investment in an attempt to limit foreign ownership of domestic companies. Investors may be prohibited from owning more than a fraction of any one company, and they may also be restricted from repatriating profits from investing activities.
Emerging markets continue to attract the attention of investors the world over. Economic reforms, the expansion of the European Union, and changing political climates worldwide may create more investment opportunities as well as pose additional challenges and uncertainty in the years to come. If you are a long-term investor with a high tolerance for risk and the need for added diversification, you may want to explore the potential benefits of making emerging markets a part of your portfolio.
Along with high potential returns, emerging markets also offer diversification benefits. Because these markets tend not to move in tandem with those of developed countries, they may be rising while other markets are falling. Hence, they can help reduce the overall risk of a portfolio. Based on these factors, many financial advisors recommend long-term investors allocate 3% to 10% of their stock portfolio to emerging markets, depending on their investment goals and tolerance for risk.*
What Are Emerging Markets?
Simply put, emerging markets describes economies that are between the stages of "developing" and "developed." Much like a teenager who is between childhood and adulthood, the emerging market phase occurs when economies see their most rapid growth - as well as the greatest volatility.
The Risks Of Investing In Emerging Markets
1) Foreign Exchange Rate Risk
2) Non-Normal Distribution
3) Lax Insider Trading Restrictions
4) Less Liquidity
5) Difficulty Raising Capital
6) Poor Corporate Governance System
7) Increased Chance of Bankruptcy
8) Political Risk
Points To Remember
Emerging markets also have attractive attributes that could contribute to strong future growth:
What are some of the risks of investing in emerging markets?
Emerging markets offer the potential for above-average investment returns. Of course, one of the basic tenets of investing is that higher returns entail higher risks. Among the risks that investors in emerging markets must consider are:
Risks such as these, along with investor speculation, have led to historically higher volatility in emerging markets.
it means investing in emerging market is fruitful for Mr. hassan?????? kindly tell
I think it is fruitful to Mr.Hassan to investing in the emerging stocks. Because emerging markets offer many benefits as Asif described....