Why Invest in Emerging Markets?

The public investor is still underweight with  emerging markets in their portfolios, says an article in Forbes magazine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         


Corporate profits tend to grow faster when economic growth is higher. One of the reasons why US companies have done so well in the last 12 months is because of growth in their non-US markets. Another benefit for investors is the diversification the EMs provide, because they tend to perform differently than developed markets, and have been successful at decoupling from the greater, longer term woes of the mature economies of the West. Morgan Stanley’s Emerging Markets Index consists of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.

Emerging markets can have good growth prospects and the fact that  aregion like the Maghreb has a young population should encourage growth, however the investor may have to take into account risk and volatility. He also has to adapt to a different culture. Political systems will probably not be as developed as in the west. Whereas much of  the developed world is experiencing a slowdown and an increase in unemployment setting up a manufacturing plant in an emerging economy can be an attractive option. Non convertible currencies can sometimes be a problem as can raising local  bank credit for projects. Government policies on repatriation of funds can also change. The opporunities for growth are a key indicator.  Regional trade to strengthen this growth  is also a factor which is why an effective Maghreb Union is so important.