The Rewards of Investing In Emerging Markets
Inasmuch as emerging markets are very volatile, investors discover that the rewards outweigh the risks. A typical example is China where investors earned a return 46.27% over five years, while the Dow Jones returned a mere 1.2% over the same period. This difference in returns between emerging and developed markets can be seen globally. Thus, in general, the highest growth and returning securities are increasingly being found in emerging economies.
Growth With Moderate Volatility
Investors can easily add emerging market potential to their portfolio by only taking moderate risks. One can reap huge profits by putting all their investments in emerging markets like China, but this can cause sleepless nights whenever there is a skirmish in China or a change in government policy against private investors. Providentially, there are emerging markets that are less risky and that guarantee investment protection. In addition, there are professionals and financial service companies that help investors select the right type of investments in specific markets. Moreover, many companies are going global hence their stock offer a favorable exposure to up-and-coming markets. Consequently, investing in such stocks or ETFs can increase returns from emerging markets with a moderate risk exposure.
Private Equity investment in emerging markets
Private equity is a method through which listed and unlisted companies raise funds privately as opposed to public equity in exchange markets. This mechanism works well for unlisted companies whose risk is perceived to be high. Private equity investors acquire stakes in a company and share its returns as well as its risks. Just like the public equity industry, the private equity industry has its own share of challenges. Before the recent global financial crisis, the world has enjoyed a decade of cheap financing. This period ended with financial markets freezing resulting in a credit crisis. The private equity industry is sailing through the aftermath of the crisis, as it is struggling to maintain an attractive level of return. As a result, private equity investors are seeking investment opportunities in emerging markets such as Asia, BRIC (Brazil, Russia, India, and China), and Africa.
Nonetheless, private equity investors face a number of challenges in these new markets. These include unfavourable taxation, and legal and regulatory impediments. Therefore, investors must perform thorough due diligence before putting their money into these markets. With the mobility of investments between old and new markets, investors realise that tax issues need to be addressed and the favoured route is structuring investment holding vehicles in Offshore Jurisdictions such as Mauritius. Mauritius being the most preferred jurisdiction for channelling of private equity investments in Africa and Asia for the past decade due to its various double tax treaty agreements with emerging countries.
It is evident that emerging markets are very risky; however, the benefits of investing in them can significantly outweigh the risks. There are opportunities for investors to cash in on the rapid growths and returns while simultaneously taking reasonable risks.
The good news is that many of the emerging markets are increasingly investing in institutional and legal reforms so as to create better business environments for foreign direct investors.
Showing posts with label Emerging. Show all posts
Showing posts with label Emerging. Show all posts
Monday, 17 September 2012
Tuesday, 4 September 2012
Property Markets in Asian Emerging Economies
Real estate in Asian emerging markets - the first thing that would come to the mind of an average investor is high returns and investment opportunities both in equity and bond markets. Don't these markets have large population and low availability of housing? No doubt, fundamentally the demand drivers are strong with increasing per capita income poised to increase house ownership. But investors have to be aware of few aspects before venturing to look at the sector - corporate governance, short track record, data availability, data integrity, complex accounting standards and regulatory framework, to name a few.
It is well known that land acquisition and approvals involve bribery in these markets. The companies have high controlling stake of promoters and the access to funding has historically been shady.
In India, bond markets are not well developed, while in China the bond markets have started developing rapidly since 2007. Many companies have accessed offshore financing through USD bonds, with the sector taking the largest share in China's high yield USD bonds outstanding. In Asian bond markets, investment grade bonds are few in number, predominantly property investment companies in Hong Kong and Singapore. Most are high yield issuance, offering high yields. Indonesia, Philippines have few offerings while there is no USD bond by Indian property space. The fixed income research houses don't have extensive coverage, for smaller junk names. The credit opinions of rating agencies do not reflect much on the operational side- no depth as demanded by the sector's complexity.
The sector is micro market driven and involves complex analysis of various projects of the companies. The disclosure by companies is minimal even for the larger listed companies, making one wonder what kind of data can we expect out of the smaller ones.
There are few established agencies collecting data and providing it to investors. Even the data maintained by most governments is insignificant and of less value to understanding the markets. In China, the sector is monitored by government but in India, it is mostly untracked with no statistics by the government. Seriously, where do we look for data? Say, a company discloses data, the veracity itself remains questionable.
The regulations are diverse. Within a country, regulations are different within provinces and cities. The approval process is lengthy, with hardly any data disclosed as to the stage of approvals. The pre-conditions for launching project sales and recognition standards are very different as well as complex. Homes can be sold before approvals are obtained, in some, after approvals but no construction; in some after a certain specified percentage is built, and else after the construction is complete. Revenue recognition can be percentage completion based or after project is handed over.
The sector is cyclical and important part of the economy, a real estate downturn is generally followed by severe economic distress. Hence, the sector tends to attract high involvement by the government.
In a nutshell, this space is more suitable for the institutional investors, who can get some data out of the management and are willing to take the additional risk. A retail investor would be better off sticking to the blue chip names in the property investment space. In corporate bond trading, private clients would very much require the advice and services of good Wealth Management Solutions company, one which has extensive experience in the local markets.
It is well known that land acquisition and approvals involve bribery in these markets. The companies have high controlling stake of promoters and the access to funding has historically been shady.
In India, bond markets are not well developed, while in China the bond markets have started developing rapidly since 2007. Many companies have accessed offshore financing through USD bonds, with the sector taking the largest share in China's high yield USD bonds outstanding. In Asian bond markets, investment grade bonds are few in number, predominantly property investment companies in Hong Kong and Singapore. Most are high yield issuance, offering high yields. Indonesia, Philippines have few offerings while there is no USD bond by Indian property space. The fixed income research houses don't have extensive coverage, for smaller junk names. The credit opinions of rating agencies do not reflect much on the operational side- no depth as demanded by the sector's complexity.
The sector is micro market driven and involves complex analysis of various projects of the companies. The disclosure by companies is minimal even for the larger listed companies, making one wonder what kind of data can we expect out of the smaller ones.
There are few established agencies collecting data and providing it to investors. Even the data maintained by most governments is insignificant and of less value to understanding the markets. In China, the sector is monitored by government but in India, it is mostly untracked with no statistics by the government. Seriously, where do we look for data? Say, a company discloses data, the veracity itself remains questionable.
The regulations are diverse. Within a country, regulations are different within provinces and cities. The approval process is lengthy, with hardly any data disclosed as to the stage of approvals. The pre-conditions for launching project sales and recognition standards are very different as well as complex. Homes can be sold before approvals are obtained, in some, after approvals but no construction; in some after a certain specified percentage is built, and else after the construction is complete. Revenue recognition can be percentage completion based or after project is handed over.
The sector is cyclical and important part of the economy, a real estate downturn is generally followed by severe economic distress. Hence, the sector tends to attract high involvement by the government.
In a nutshell, this space is more suitable for the institutional investors, who can get some data out of the management and are willing to take the additional risk. A retail investor would be better off sticking to the blue chip names in the property investment space. In corporate bond trading, private clients would very much require the advice and services of good Wealth Management Solutions company, one which has extensive experience in the local markets.
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