Why are Emerging Markets key Destinations for Staggering Equity Returns (updated)

Generally, developed markets are considered safe-heavens for stock investments, but returns on equities from such markets may seem subdued to investors tempted by bullish stock trends of emerging markets, particularly India and China. This is the reason why Russia, India, China and Brazil which are the fastest growing markets and continue to remain top investment destinations for savvy investors from Europe and America.

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Investing Long Term in Emerging Markets

Such investors risk small percentages of their overall portfolios with long term investments in emerging economies, with a hope of boosting their portfolio returns. This seems to be a wise investment strategy as diversifying investments overseas reduces risks much more than buying stocks from different sectors in domestic markets. Moreover, developed markets consolidate for a longer time frame, and when stuck in bear market cycle, it might take years before any green shoots are visible.

On the contrary, emerging markets are known for fast bounce-back recoveries, as liquidity chases growth, and investors from developed world rush for emerging market equities whenever concerns arise over returns from their domestic fronts.

Staggering growth rates, highly undervalued stocks and amass scope for future growth are the key drivers that attract long term investments towards emerging global markets. Buoyant domestic demand and self sufficiency are other factors that provide a solid backbone to local businesses and boost long term investments in stock markets of emerging economies, as global investors take these as comfort cushions and thus make confident investments.

Well, every emerging market has its own performing stars and sick laggards so having a restricted sector investment strategy may not be the best way to invest in these markets. However, when investment decisions are subject to BRIC nations, sector and stock picking is not a challenging task as plenty of research material is readily available. But when the focus is on NON-BRIC countries, floating information on businesses may not be sufficient to make sound investment decisions so market research and analysis companies should be hired to conduct extensive research.

In order to make it simple and narrow down hectic research for global investors, below are mentioned, BRIC countries and their respective sectors worth long term investments.

• India- Information & Technology, Banking, Real Estate, Construction and Steal

• China- Manufacturing, FMCG, Consumer Electronics, Infrastructure & Construction and Mining

• Russia- Oil & Natural Gas and Capital Goods

• Brazil- Agricultural Commodities and Mining

Investors can conduct in-depth research on stocks of companies from above mentioned sectors, or they may even explore independent stock opportunities in other sectors, but with utmost caution.

Stock market investments carry unprecedented risks, and this is no exception while investingin global emerging markets. May it be large BRIC countries or Non-BRIC nations such as South Africa and Vietnam, all have varied set of internal issues that affect movement of their respective stock markets. So, global investors must consider factors such as liquidity flow, political situation and most importantly transparency issues related to company disclosures.

It is important to note that liquidity is the key force that drives stock prices in emerging markets, and any concerns due to political unrest, terrorism, international relations or slump in domestic demand can lead to severe liquidity crunch. Simply put, global emerging markets are ideal investment destinations for investors with high risk/return portfolios as these can take wild swings with a change in market sentiment.

Analysts vary on forecasting long term scope of returns from emerging world, but investors should back their investment decisions on pure valuation basis and invest in markets that thrive with modern infrastructure, technology and good governance.