Investing in Developing Markets
Investing in developing markets has both advantages and disadvantages; however, the positives outweigh the disadvantages. One, the demographics of developing markets are much superior to those of developed countries. They make up 86 percent of the world's population (Kempler, 2012, p. 4). These countries have a growing youth population, which means more labor for investors; in developing countries, the population of young people is poor, resulting in a shrinking workforce. African countries have the youngest populations and are growing at a rapid pace. Second, some developing economies have higher GDP per capita than low developed countries. For instance, Taiwan and Korea have a GDP per capita of 22,000 dollars apiece (Kempler, 2012, p. 4). Three, there is a high demand for manufactured products in emerging markets which is a good factor for commodity exporters. Brazil, India, China, South Africa, and Russia are good markets for exporters (Cabeddu, 2014, p. 8).
Risks
There are also a number of risks in pursuing these business ventures. Most emerging markets do not have a stable currency; it keeps on fluctuating. This is not good for business because an investor should be able to foresee their profits. For instance, in 2012 many American investors in Brazil and India suffered major losses. These markets are also susceptible to inflation; India, Turkey, and Russia have registered inflation rates of more than 6.5% in recent years (Renfrew, 2013, p. 5). Moreover, emerging markets have a problem of political instability during regime change and threats from surrounding sovereign power. Countries of the Arabian Spring have favorable demographics for investment; however, they are very volatile because violence can erupt anytime.
Conclusion
Emerging markets are favorable markets for direct investments. They might have a few hindrances such as volatile currencies and political situations. However, we cannot ignore the advantages that these populations offer. In terms of political stability, investors can target countries such as Taiwan and avoid Arabian Spring countries.
References
Cabeddu, L., 2014. Why was Emerging Market Growth High in the Last Decade?. Emerging Markets in Transition: Growth Prospects and Challenges, p. 8.
Kempler, L., 2012. Are emerging markets the next developed markets?. Blackrock Investment, p. 4.
Renfrew, A. M. &. K., 2013. Understanding gthe reisks of emerging-market investing. Differences Matter in Emerging Markets, p. 5.
