What You Need to Know About Investing in Emerging Markets

Emerging markets, also referred to as developing countries or emerging economies, refer to nations that are investing in more productive capacity, moving away from their traditional economies that have relied on exporting raw materials and agriculture. Their leaders are seeking to create a better quality of life for their citizens, so they are quickly industrializing and adopting a mixed economy or free market. They're important as they drive growth in the global economy. These markets have a lower-than-average per capita income, defined as developing nations with either a low or lower-middle per capital income of under $4,035.

Emerging Markets are Suffering

Emergency markets had a great run in 2017, but the MSCI Emerging Markets index fell 17.7% from its peak in January through mid-September 2018, Kiplinger.com reported on October 4, 2018, with experts noting a lot of volatility and more coming.

In September, Nasdaq reported that with the U.S. dollar rallying, other countries, particular those with emerging markets have been suffering from weakening currencies, including the Mexican and Argentinian pesos, the Turkish lira, Indonesian rupiah and South African rand which all crashed within a very short time span. South Africa unexpectedly plunged into an economic recession for the first time in nearly 10 years, with the rand dipping as much as 3.4 percent. In Mexico, the peso sunk as low as 1.6 percent while the lira dived down to 1.3 percent. The primary causes were America's rise in short-term interest rates, the stronger dollar and the intensification of global trade disputes. Investors and economists predicted that it won't be as easy for these nations to bounce back, like the “Fragile Five,” South Africa, Turkey, India, Indonesia and Brazil did in less than five years after heavily suffering in 2013, due to heavy debt.

Could It Be a Good Time to Invest?

It's important to understand the dynamics in risky, emerging markets. If you're thinking about buying property, perhaps one of the Boston homes for sale, you might want to do that first, but there's no reason to keep avoiding emerging markets' stocks. If you have the cash to invest, now may be a good time to do as T. Rowe Price portfolio specialist Joe Martel advises.

The Kiplinger report further notes that while the short-term will see continued volatility and the potential for more losses for emerging markets stocks, it good be a good buying opportunity for investors with longer timelines, such as five to 10 years who can stay the course.