It carries much more risk than alternative forms of investment, but if you are serious about coining the big profits then developing markets is one area that you should most definitely consider (Fortune, 2018).
Sure, you might lose some money, but if one company gets their strategy right the rewards can far surpass anything that you would receive in a so-called stable economy.
Of course, there are various do’s and don’ts when it comes to this area, and through today’s piece we will mull over four tips that can help you along your way.
- Understand developing market
First and foremost, you need to establish what a developing market is. If we turn to strict definitions, it can be referred to as a country with “a less developed industrial base and a low Human Development Index relative to other counties” (Wikipedia, 2019).
Then, in terms of a list itself, this is by no means small (ISGE, 2019). If you are serious about filtering these lists, it can sometimes be worthwhile to research more about these nations, and perhaps find out how much foreign aid they receive as an example (Wristband, 2019). It’s factors like this which can provide you a real balanced view over what a developing market is – and allow you to tailor your investing strategy accordingly.
- Never expose yourself to just one market
There’s absolutely nothing wrong with investing in developing nations and this is a tried-and-tested strategy that countless investors take advantage of.
Problems start to begin if you just expose yourself to one market though. This means that your risk levels are immediately higher than they should be. Instead, make sure you diversify across markets, trying to invest in two nations at the very least. Not only that, but turn to different investment vehicles as well, whether it’s stocks, bonds, mutual funds or currencies.
- Monitor debt levels closer than normal
A lot of companies around the world are burdened with debt (Independent, 2018). As such, when you venture to a developing nation, it’s hardly a surprise to find that they have debt levels as well.
However, there’s no doubt that you need to scrutinize the figures a bit more tightly. They have probably borrowed money from more established nations, but do they have the earning power to pay it back? In truth, this is part and parcel of investing, but if there are extraordinarily high levels of debt it can be a major red flag in an emerging country.
- Expect volatility
If you’re investing on home soil, volatility can be something that puts you off a potential investment. As soon as you venture to a developing nation, this has to be expected. If you look at their recent stock prices, and see that it’s been like something of a rollercoaster, it’s not necessarily a bad sign. In markets which are not yet developed, it’s an expected sign, and a sign that means you should be conducting more research into your company of choice to find out if it’s a worthwhile investment. It should never be a definite reason to turn away from them.