An emerging markets investor looks for investments in the world’s fastest-growing countries and, thus, many of the world’s fastest-growing companies.
Before the mid-1600s, there was no such thing as an emerging markets investor. There were, of course, foreign investors in activities such as the spice trade. And there is some evidence that the ancient Greek economy relied in part on ‘international’ investing. But there is one simple reason that you wouldn’t find an emerging markets investor before the mid-1600’s: the word ‘emerging’ did not exist.
According to the Merriam-Webster dictionary, the first known use of the word came in 1646. And the Oxford dictionary states that it is derived from Latin and means to arise out of a dive, or as we define it now, to come into existence or develop. An interesting point, though, is that the word ‘cryptography’ (secret writing) is also from 1646. What does this have to do with investing?
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An emerging markets investor is, in some sense, a cryptographer. They look beyond the obvious investments (think Amazon (AMZN) or the Kraft Heinz Company (KHZ)) to discover the hidden investments that are just starting to develop.
Why become an emerging markets investor?
Emerging markets investing really began to heat up after the turn of the 21st century, when much attention was focused on the so-called BRIC countries, which were Brazil, Russia, India and China. Those four countries combined enormous populations with stable governments and national economies on the verge of major expansion.
Consumers in these and other emerging markets tend to be young (China and Russia are exceptions) and are moving into the peak spending and investing periods of their lives. Think of them like American families in the early 20th century or coming out of World War II.
There’s more to it than just the economic activity of an emerging market country, however. We live in a highly interconnected world. If you need an example, simply look on the tag on your shirt. It’s probably made in China. Even the fresh fruit in grocery stores sometimes comes from Ecuador, Brazil or other nations where the growing season is opposite the United States.
How to be an emerging markets investor
Of the 190 countries in the world, only 50 of them are considered “developed” – the remaining 140 countries are viewed as emerging or frontier markets.
Any kind of growth investing has inherent risk. For an emerging market investor, you take on even greater risk. There are a lot more unknowns when investing in a country that is still developing. And the less you know about a company, the more risk there is when you invest in it.
One way to curb the risk and find success as an emerging markets investor is to find the strongest stocks in the entire universe of emerging markets stocks that trade on U.S. exchanges as American Depositary Receipts (ADRs), thus ensuring that they’ve been vetted and meet the strict U.S. standard required by the exchanges, and have a clean bill of health.
Have you considered investing in emerging markets? Share your thoughts in the comments below.
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