What is an Emerging Market?

An investment in any emerging market is not without some risk, but may also come with the chance for big rewards.

Of the 190 countries in the world, only 50 of them are considered “developed.” These are countries like Germany, Britain, Japan, Canada, the U.S., and so on. Invest in companies located in any of the remaining 140 countries, and you are investing in an emerging market. 

An emerging market investment comes with a lot of promise, and there are plenty of good reasons to hold these stocks in your portfolio. These economies tend to grow faster than the economies of developed countries, and are thus fertile ground for fast-growing companies and investments.

Brazil, Russia, India, and China—the so-called “BRIC” nations—garner the most attention. But you can find good stocks in other, less populous corners of the globe, including South Korea, Mexico, Turkey, Saudi Arabia, and South Africa. The options are numerous for investors willing to explore outside their American bubble.

These markets aren’t all speculative, either. Emerging market blue-chip stocks have the same talented management and steady dividends that traditional blue chips offer.

Beware, however, that many emerging markets are plagued by political instability, inferior infrastructure, volatile currencies and limited equity opportunities. In addition, some of the largest companies in emerging markets are either state-run or private. There are simply more unknowns when investing in a market that is still developing. And the less you know about a company, the more risk you take on when you invest in it.

One way to curb the risk is to invest in American Depository Receipts (ADRs) traded on U.S. exchanges, which subjects the stocks to strict U.S. requirements.

To find out more about making profitable investment decisions, download your FREE copy of our report, How to Find Undervalued Stocks.