Should I Invest in Emerging Markets?

Reader Letters: Is it worth investing in emerging markets or is it too risky? It depends 

Holly Black 27 July, 2021 | 10:39AM
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Holly Black: This week's reader asks, should I invest in emerging markets? And honestly there is no right or wrong answer, it depends on your own preferences and your risk tolerance. I do think emerging market is quite often overlooked by investors, who just assume they are really risky. And the mistake there is to lump all of the countries together when actually the prospects of say Brazil, China and India are all really different. And what's interesting is how reliant we are on products made in emerging markets versus how hesitant we are to put our money there.

So, research from Templeton Emerging Markets Investment Trust found 93% of people use an emerging markets product every day; your smartphone, your TV, for example. But only 11% of those people actually invest in emerging markets. So, as investors we have a tendency towards home bias, which is when we tend to put the majority of our cash in our home stock market because the companies there feel familiar and safer as a result. And actually, that means we are missing out on a world of potential returns as a result. Think of some of the most exciting companies in the world right now and they are based in emerging markets that's Alibaba in China; Taiwan Semiconductor which has computer chips, they are probably in all of your computers and smartphones; or Vale a mining company in Brazil getting copper out of the ground for electric vehicles. So, there is no right or wrong to, should I invest in emerging markets, but it is definitely worth considering.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk