Chapter Two

Top Reasons for Investing in Emerging Markets

Growth and Diversification

Why invest in emerging markets? Because that’s where the growth is!

Economies of emerging markets are growing much faster than those of higher-income, developed countries. The International Monetary Fund (IMF) estimated that emerging economies would grow by 6% in 2012, three times faster than the 2% growth estimated for developed countries.

Why the Sudden Growth Spurt?

What are the reasons for this uptick in emerging market growth? When a country is growing at 5% and the population is growing at only 1%, then the per capita income increases at a fast rate. This is what is happening in emerging markets. This fundamental development is enhanced by another high growth propellant: the relatively low base from which these nations have been emerging, which allows for spectacular jumps in growth.

Emerging market countries are also in luck in this critical sense: They have not had to reinvent the wheel—the cell phone, the laser printer, or industrial robots—to realize the rewards of modern technology. In practical terms, for example, this means that some countries were able to establish stock exchanges that didn’t need trading floors, because all trading was electronic and brokers could enter buy and sell orders using computers. The productivity enhancements gained by technological innovations could be obtained in the blink of an eye. Such technology transfers have helped propel growth in emerging markets. ...

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