Significant benefits can be attained by investing in emerging and global markets. Presently, potential investors can tap considerable fortunes from the emerging markets, especially where the added investments are directed to diversifying an investor’s portfolio. However, it is crucial to note that with accelerated expectations of returns, there are equally overwhelming risks that can inhibit the ability of the investor to generate profit or the overall fortunes of the venture. This editorial evaluates typical risks that investors should consider when joining or expanding their investments in emerging and global markets and the appropriate Financial Risk Management practices to implement.
Evaluating country-specific risks is essential in designing profiles that will absorb the uncertainties anticipated in the emerging and global markets. 1 Political risks stand as one of the most inherent money markets disruptions on a global scope. Hensiz and Zelner indicate that success is only assured based on the interplay realized between what foreign countries offer and the needs of the investing entity. 2 Political risks in this regard refer to the business alterations expected from a country’s policy formulation process, economic crises, societal attitude disruptions, and broader domestic economic concerns, for example, the protectionist sentiments on emerging global markets such as China and India. Multinational firms that adopt amicable procedures of forestalling and managing risks of political inclinations have a better competitive edge. 3 In addition, understanding the fundamental analytics of emerging and global markets implies the ability to decipher impending financial risks in the short- and long-runs.
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The investments in emerging and global markets are prone to foreign exchange rate risks. 4 Indeed, the nature of international transactions is that stocks are purchased in local currencies. As such, they are affected by the fluctuations encountered at the time of the trading process. The currency fluctuations affect the total returns of an investment, and there are no precise methodologies of counteracting such happenings apart from formulating credible technical and fundamental analyses that aim at suppressing the overall net losses incurred. 5
It is, therefore, crucial for investors to critically analyze the prevalent conditions that enhance markets risks and formulate robust strategies to contain them to achieve optimal profit gains. While various technicalities predispose investors to global market risks, political uncertainties have a significant effect in shaping the productivity of individual markets. Political risks encompass other risks such as those based on economic crises, taxation policies, and societal attitudes. Similarly, emerging global markets are aligned to the foreign exchange structure, which suggests the need to fast-track the risks anticipated from the underlying currency conversion rates. Nonetheless, investing in emerging and global markets is undoubtedly viable and even more profitable when investors understand the risks associated with the venture and the applicable mitigation procedures.
Bibliography
Beattie, Andrew. 2018. "Should You Invest In Emerging Markets?". Investopedia . https://www.investopedia.com/articles/basics/11/should-you-invest-emerging-markets.asp .
Bloomberg Professional service. 2018. "Bloomberg - Are You A Robot?". Bloomberg.Com . https://www.bloomberg.com/professional/blog/risks-and-opportunities-in-emerging-markets/ .
Cavusgil, S. Tamer, Pervez N. Ghauri, and Ayse A. Akcal. Doing business in emerging markets . Sage, 2012.
Froot, Kenneth A., David S. Scharfstein, and Jeremy C. Stein. "Risk management: Coordinating corporate investment and financing policies." the Journal of Finance 48, no. 5 (1993): 1629-1658.
Henisz, Witold J., and Bennet A. Zelner. 2018. "The Hidden Risks In Emerging Markets". Harvard Business Review . https://hbr.org/2010/04/the-hidden-risks-in-emerging-markets .
1 Andrew, Beattie. 2018. "Should You Invest In Emerging Markets?". Investopedia. https://www.investopedia.com/articles/basics/11/should-you-invest-emerging-markets.asp
2 J, Witold Henisz., and Bennet A. Zelner. 2018. "The Hidden Risks In Emerging Markets". Harvard Business Review. https://hbr.org/2010/04/the-hidden-risks-in-emerging-markets
3 A, Kenneth Froot., David S. Scharfstein, and Jeremy C. Stein. "Risk management: Coordinating corporate investment and financing policies." the Journal of Finance 48, no. 5 (1993): 1629-1658.
4 Bloomberg Professional service. 2018. "Bloomberg - Are You A Robot?". Bloomberg.Com. https://www.bloomberg.com/professional/blog/risks-and-opportunities-in-emerging-markets/.
5 Tamer, S. Cavusgil, Ghauri N. Pervez, and Akcal A Ayse. Doing business in emerging markets. Sage, 2012.
