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What Are Emerging Markets?

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What Are Emerging Markets? They Are an Excellent Alternative for Investors Who are Looking to Take Advantage of Incredible Growth and Diversify Their Portfolios.

New investors often ask, “what are emerging markets?” Emerging markets are economies whose gross domestic product (GDP) is growing at a much faster rate than more developed markets such as the U.S., Germany and Japan. Consequently, the stocks in those countries often grow at a faster clip than the average stock in a more mature market.

What are emerging markets doing worldwide?

Brazil, Russia, India and China—the so-called “BRIC” nations—garner the most attention. But good stocks can be found in other, less populous corners of the globe, including South Korea, Mexico, Turkey, Saudi Arabia and South Africa. The options are numerous for investors willing to explore outside their American bubble.


There are myriad reasons to do so. Investing in emerging markets allows you to invest in countries with double-digit GDP growth—or close to it. At a time when America’s economy is expanding in the low single digits, Japan’s economy is struggling and much of Europe is still buried under a mountain of sovereign debt, emerging markets hold more appeal than ever.

What are emerging markets worth to my investing portfolio?

Of course, all emerging markets investing comes with its fair share of risk. The term emerging is really a euphemism for “underdeveloped.”

Many emerging markets are plagued by political instability, inferior infrastructure, volatile currencies and limited equity opportunities. In addition, some of the largest companies in emerging markets are either state-run or private. There are simply more unknowns when investing in a market that is still developing. And the less you know about a company, the more risk you take on when you invest in it.

One way to curb the risk is to invest in American Depository Receipts (ADRs) traded on U.S. exchanges, which subjects the stocks to strict U.S. requirements.

Focus on companies with healthy balance sheets, solid growth and whose stocks are in the midst of a strong uptrend.

For some, emerging markets are simply too risky. But for many, the potential for massive rewards is worth the extra risk.

How do you pick emerging markets to invest in?

The Cabot Emerging Markets Timer is our indicator for measuring the intermediate-term trend of emerging markets-related stocks. The indicator uses the iShares Emerging Markets Fund (EEM), which includes emerging markets stocks traded on U.S. exchanges.

Why trend-following? Why not try to pick a top and bottom of each cycle with a bunch of technical indicators? Because we don’t know any investor who has consistently succeeded in picking tops and bottoms. There is no system that can do so consistently.

But there is a system for staying on the right side of the trend. We’ve been using it for decades, and tens of thousands of Cabot Global Stocks Explorer subscribers have found it very rewarding. With this system, you’re guaranteed to remain heavily invested during every major emerging market upmove…and you’re guaranteed to be defensive, holding some cash, when the market decides to enter an intermediate-term downmove.

If you want to learn more about emerging markets, how to invest in them, and what stocks to back, consider subscribing to Cabot Global Stocks Explorer published by Cabot analyst, Carl Delfeld.

What are emerging markets worth to your portfolio? Leave a comment and let us know how you like to invest.


Cabot Wealth Network