Emerging Markets For Capital Investment

Of late emerging markets have become a buzzword among the international investors for reaping greatest potential rewards which would be impossible if they stayed put in their affluent hinterlands. The term emerging markets (EMs) is a collective reference to the stock markets of the developing nations. IFC (International Finance Corporation) has listed 35 countries as emerging markets. The first place in terms of GDP/Capita is occupied by Greece and India ranks poor 20th in this list of 20 countries. In terms of capitalization Mexico ranks first and 20th rank is secured by Zimbabwe. India occupies fifth position in capitalization. In term of listed companies India occupies the top most position. India has largest number of stock exchanges among the emerging markets. India has a share of 46 per cent of the total companies in the emerging markets and 21 per cent of the total global listed companies.

It is comparatively easier to beat the markets in the EMs as compared to developed markets. In developed markets more arcane ones with mixed results have supplemented the traditional tools of fundamental and Technical Analysis. Considered on the risk from EMs are extremely risky when compared with developed markets. Apart from the obvious threats (political instability, insider trading and others), there are a number of possible reasons why these markets are extremely volatile. First they tend to be fairly concentrated; the larger stocks have a high proportion of the overall capitalization. As a result, there are fewer opportunities for diversification, and returns of these stocks dominate overall market return. Second, unlike the developed markets, which tend to have forces that affect diverse sectors of the economy differently, the EMs tend to have a strong market related force that affects all stocks within a market. It is true that emerging markets are extremely risky taken individually, but considered together EMs provide a good scope for diversification as these markets have low correlations not only with each other, but also with the developed markets. It is a generally accepted fact that investment in unrelated markets reduces the degree of risk.