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Emerging Markets Guide

 

Drawbacks

What are the drawbacks of investing in Emerging Markets?
While there is potential to make superior returns in emerging markets, there is also a high degree of volatility, making them unsuitable areas for risk-averse investors.

Volatility is a measure of how much actual returns fluctuate either side of the average, and short-term investors trying to time a low-cost entry followed by a profitable exit are unlikely to achieve it in this moveable feast. The risk spikes at this level can be mitigated by the passage of time, and so investment here must rely on a long-hold strategy.

Those investing in emerging markets are investing in the countries' economies' potential for growth and continually improving conditions in the wider sense. Meanwhile, investments are susceptible to inflation rates, currency fluctuations, macroeconomic events and natural disasters.

There is also greater risk due to political instability, domestic infrastructure problems, and limited equity opportunities as many large companies may still be "state-run" or private.

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