Emerging markets are risky.
According to research by Templeton Emerging Markets Investment Trust investors could be missing out on the emerging market opportunities because of misconceptions about emerging markets.
Key misconceptions included:
- Emerging markets are risky
- Volatility is not beneficial for investment portfolios
- Investors know which countries are emerging markets
- Emerging markets are all about commodities
- Emerging markets do not drive innovation
Read on to find out if any of these misconceptions might be affecting the way you think about emerging market investing.
Misperception vs. Reality
Misperception
Reality
Adding emerging markets exposure can potentially diversify a portfolio and reduce risks.
77%
of respondents think that adding emerging market exposure to an investment portfolio increases risk
"Whilst many investors may dismiss emerging markets as too risky, the rewards they can deliver over time mean they should not be overlooked. In the current low-growth, low-yield environment, emerging markets provide investors with access to innovative, fast growing companies trading at attractive valuations."
Misperception
Volatility is not beneficial for investment portfolios.
Reality
Volatility provides opportunity for active managers.
50%
of investors agree that volatility is beneficial for portfolios. However, 29% do not think it is good for investment portfolios
"Despite the higher growth rates of emerging markets compared to developed-market economies, valuations generally appear much more reasonable. You can invest in many emerging market companies at a price that is a significant discount to an equivalent business in the developed world. And, because of their low correlation with each other and with developed market stocks, they offer investors better diversification."
Misperception
Investors know what an emerging market is.
Reality
Investors can only identify famous emerging markets.
Research shows investors can easily identify some of the most famous markets as emerging whilst there is some confusion over less famous markets.
Learn more in our infographic - Widespread confusion about emerging markets could be costing UK investors
Misperception
Emerging markets are all about commodities.
Reality
Information Technology and Financial Services now form the biggest part of the MSCI Emerging Markets index.
56%
of investors still associate commodities with emerging markets
"Emerging markets are no longer driven by commodities; the business models that focused on infrastructure, telecommunications, or commodity-related businesses have gone. Instead, the technology sector in emerging markets is providing us with many interesting opportunities and we think it’s a very exciting time for investors in this space."
Misperception
Emerging markets do not drive innovation.
Reality
Over half of global patent applications are now registered in emerging markets.
53%
of investors believe the largest number of global patents are registered in the US.
"Emerging markets are no longer driven by commodities; the business models that focused on infrastructure, telecommunications, or commodity-related businesses have gone. Instead, the technology sector in emerging markets is providing us with many interesting opportunities and we think it’s a very exciting time for investors in this space."