Chapter Four

Getting Down to Business

How to Invest in Emerging Markets

Once you’ve decided you will move into emerging markets, the next question to decide for yourself is how to invest. The challenging world of emerging market investments holds great rewards, but also substantial risks for the investor. The criteria to be applied when evaluating the desirability of investments in those markets vary depending on your investment style and objectives.

As an investment manager, I believe in the efficacy of mutual fund investment and will outline why in this chapter. However, some investors may have a preference for purchasing stocks themselves, so I include a review of investment instruments and how to use them.

Primary investment instruments to access emerging markets may be summarized as follows:

  • Emerging market mutual funds.
  • Domestic listings of emerging market companies.
  • Depositary certificate listings of emerging market companies in developed stock markets.
  • Exchange-traded funds.

Let’s get started by looking at mutual fund investments.

Emerging Market Mutual Funds

Emerging market trusts and funds as we know them today began in 1986, with the launch of an emerging markets fund for institutional investors by Capital International and the International Finance Corporation (IFC). Individual retail investors were able to invest in emerging market funds in 1987, when Templeton launched its New York Stock Exchange—listed Templeton Emerging Markets Fund, Inc. At that time, no other ...

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