For over two decades the emerging economies’ markets have generated handsome returns for investors and thus created exciting investment opportunities globally. A careful analysis reveals that the growth of developing economies such as Latin America, Asia, and Eastern Europe began to grow at faster rates compared to developed economies. Some of the major causes for high growth may be attributed to trade liberalisation measures, new economic reforms, adherence to global trade pacts, and opening the door for Western investment. Meanwhile, increased urbanisation and escalating middle class incomes created a new class of a new generation of consumers that have very strong demand for infrastructure developments and consumer goods to support their new lifestyles. Thus, as a result of these significant shifts in market developments, investors were able to enjoy exceptional returns from their investment. Hence, the emerging markets have provided significant investment opportunities for investors during the past decade or so – whether in fixed income securities, currency market, or equity investment.
An investor will seek higher returns in the form of risk premium for taking higher risks of investing for the long run in emerging markets. These markets are expected to benefit from faster economic growth compared to the developed markets in the longer time horizon. This means that a considerable portion of faster economic growth should transform into higher equity market returns and corporate earnings. ...Show more