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Should you invest in emerging or developed markets?

Updated: Dec 16, 2022

The Indian markets saw some of the most extraordinary bullish rages and bearish attacks in the past two years, with investors jumping from ship to ship for investment opportunities. And why wouldn’t they? The volatile market surely favored those who timed their buys and sells right, while trampling the hopes of those who couldn’t.

That is something that budding investors have frequently ignored - the risks of investing in emerging economies. But before we go there, let’s understand what makes emerging markets more attractive and almost utopian to investors.

Investing in Emerging Markets

Investing in emerging markets is a high-risk, high-reward proposition that can tempt any investor to hunt for opportunities. About 90% of the world’s population under 30 lives in these emerging economies, contributing to their strong labor-market growth. To support this fact, the International Monetary Fund forecasted average annual GDP growth of 5.5% for emerging markets in 2021-23, compared with 3.5% for advanced economies, WSJ reports.

To add to all of it, experts suggest that inflation has a lesser effect on emerging economies now than it used to, stabilizing them to some extent.

These facts are luring investors but at a huge risk because the success achieved by their financial markets tends not to last too long.

Russia is considered a prime example of this case. Amid extreme communism and poor financial management, Russia has faced massive debts and currency depreciation since the 1990s.

Other countries like India and Brazil that were severely hit by the pandemic are also expected to face a bearish response this year.

Investing In Developed Markets

Emerging markets are still prone to great adversities that developed markets are quite immune to. Very little political or social unrest and consistent economic growth enables developed markets to ensure consistent benefits to global investors.

Here’s a comparative outlook at the essential aspects of investing in developed markets that clearly outdo the momentary joys of investing in emerging markets.

Persistent Returns:

Developed markets, especially in the US, are home to some of the most gargantuan companies that have grown for decades against all odds. Alphabet, Amazon, Tesla, Meta (formerly Facebook), Microsoft, and many less known conglomerates reside here. And data shows, people made 27.39% return on their investments in the US market (NASDAQ) Vs. 13.63% return on their investments in the Indian market (NIFTY) in just three years till 30th June 2021.

More Security:

The MSCI Emerging Markets Index