Chapter 9. If You Want to Roll the Dice: The Lure of Emerging Markets

The American Economy may be coming unglued. I'm convinced this is true, but does it make sense to invest in emerging economies, where the glue is still hardening? My answer is a complicated one, but the bottom line is yes. Investing in emerging markets is a little like riding a bucking bull, pun intended. It requires a cowboy's skill and bravery, but there's nothing quite like it, and the prize money makes it all worthwhile.

Emerging markets, which are also called developing and lesser-developed countries, are an asset class whose admission requirements include a stock market open to foreigners and providing an adequate degree of liquidity, an absence of prohibitive regulation and taxation, a unified currency, and a growing industrial base, even though the standard of living may be low. Economic potential is the defining standard. I'm not talking here about agricultural societies we know by such names as Third World, underdeveloped, or nonindustrialized nations.


Because of this value as a hedge against falling stock prices and because they have been touted by mutual funds as hot investments, emerging markets have attracted growing numbers of investors seeking diversification and high returns.

As an asset class, emerging markets stocks tend to be countercyclical to both American and European stock markets and more in sync with commodity market cycles, which I suspect owes to the fact that raw materials and energy ...

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