Small-Caps Party like It’s 1999 — The Heat is On in the Small-Cap Sector
Yesterday we dwelled on the notion that China’s aggressive trade tactics against Australia are in response to Western military manoeuvres.
When concerned with the global economy, it’s important to look beyond the powerhouses that are often in the spotlight, and to look at the various emerging markets operating just off stage.
Today’s biggest emerging markets (BEMs), include Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey. Not as big, but still making impact, are Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand.
These countries are likely to influence the world markets in the short- and long-term. Read on to discover the best ways to profit from the meteoric rise.
An emerging market economy is an economy that is progressing toward becoming advanced. This can be seen by the level of liquidity in local debt, equity markets, as well as the existence of a market exchange and a regulatory body.
An emerging market has some of the characteristics of a developed market but does not meet enough standards to be classified as one. These include countries that may have been developed markets in the past or are truly in the running to become one in the future.
How do you spot one? Well, they have a few characteristics.
Firstly, they tend to have a lower-than-average per capita income.
The World Bank defines developing countries as those with either lower or lower middle per capita income of less than US$4,035. Low income is the first important criteria because it provides an incentive for the country to pursue the second identifying characteristic — rapid growth.
Rapid social change then leads to the third characteristic — high volatility. This can come from natural disasters, external price shocks, and domestic price instability.
Such traditional economies that are reliant on agriculture are especially vulnerable to natural disasters, such as earthquakes, tsunamis and droughts.
Emerging markets can also get caught in the wind of volatile currency swings, especially those using the dollar. They are also susceptible to market swings in commodities, such as oil or food. Why? It’s because they don’t have enough power to control or influence these movements.
But if they are successful, rapid growth in an emerging market can also lead to the final, and most exciting characteristic — a higher than average return for investors.
Many developing countries focus on an export-driven strategy. Such a demand isn’t a priority back home, so they produce lower-cost consumer goods to deliver to the developed world.
The companies that fuel this growth profit the most, equalling in higher stock prices for their investors, and a higher return on bonds to cover the additional risk of emerging market companies.
You can see, then, why emerging markets are so attractive to investors.
But be warned — not all emerging markets are good investments.
When doing your research, you need to pick your investments carefully.
When looking at emerging markets, you should only pick markets that have little debt and a growing labour market.
Want to know more? Well, read on. At Fat Tail Daily, we provide you with all the latest news and insights into this area, to keep you well informed and in front of the masses.

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