Emerging Market Economies: Overall Outlook

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Emerging markets usually carry additional risks due to various unstable parameters like political uncertainty, currency and economic risks, besides being prone to natural disasters that affect the countries more than what would happen in the same scale in developed markets. Yet, they provide the maximum diversification and multiple opportunities along with prospective upside to return on investments. Emerging markets are generally less correlated to the developed markets and as such, they are a good ground for portfolio diversifications. But when liquidity and capitals are changing domains and funds are getting transferred back and forth within minutes from the developed to the emerging markets, emerging markets are finding it difficult to decouple fully from the developed markets. Moreover, any uncertainty about geopolitical and economic events gets correlated quickly with the emerging markets. The equity market performances of the EMs are being tracked every moment and some major indices have been created to measure as such, the MSCI-EM, comprising of 26 nations under Morgan Stanley’s purview. The MSCI-EM that tracks EM’s, rose 33.24% in 2007 indicating growth prospects and and better investment returns from these markets in the near term. Though volatility plays it part, new free trade inititive within the ASEAN and South Asian nations will boost the emerging markets in the coming years.