Challenges And Opportunities With Emerging Markets

Several countries that were once known for political unrest, hyperinflation, civil rebellion and military coups, have seen a U-turn occur in recent times.  The likes of Brazil, China and India were deemed the countries of tomorrow by the media, but now it is evident that in terms of business and investment their day may have arrived. Over the past decade, these countries (among others) have become emerging markets that provide continuous investment opportunities. However, with growth comes responsibility and it pays to know what emerging markets opportunities and challenges might be ahead.

Escalating Growth

The recession of 2008/2009 took a heavy toll on developed nations, with slow growth predicted for European countries and the United States well into the foreseeable future. While developed nations are spending their time sorting out the messes that their economy’s are in while awaiting another prosperous period, emerging markets in the “advanced” world are experiencing an unparalleled growth in economic strength. Nations that are operating with exporting services at their core are seeing a strong flow of capital and market investment, with banking institutions seeing increasing periods of stability. Inflation was what once held many emerging markets back, however as economic growth has prospered, inflation has decreased tenfold within the developing world.

Opportunities

Discussions with regards to where the investment opportunities lie within emerging markets are always in some degree subjective, as such markets span the entire world. Asia was considered to be the first nation to recover from the economic crisis, with businesses seeing little to no lasting effect. This allowed China to emerge from the shadows and overtake Japan as the largest economy in Asia, and by 2017 it is set to overtake the US to become the largest economy in the world. In fact, Asia as a whole is considered a hotbed for emerging markets, as Korea, Taiwan and Malaysia have also been tagged as strong performers.

Latin America has also seen its fair share of markets emerge since the economic crisis. Brazil has become the continent’s largest economy, with increased enthusiasm and foreign investment the country has been described as “booming” by experts. Mexico, Argentina and Chile have also become top prospects for investors looking for the next major emerging market. Obviously of all the Latin American markets Mexico has the strongest links with the US, however in spite of this their future prospects look healthy, which may appease the worries of some investors.

Challenges

Within the world of emerging markets, the key challenge facing any investor is distinguishing the difference between hype and reality. The openness of the market offers investors higher degrees of purchasing power, but that doesn’t mean that every emerging market investment will be a winner. It takes time to be successful in what can be described as a high risk field at times, and due diligence to see what the real state of market is should be considered a must. Other issues that are common when directing your attention to foreign markets include failing institutions and corruption. These markets will be doing all they can to entice international investment, as they should, but it is up you as the investor to decipher the real from the embellishment.