Yet the Christchurch earthquake shows just how vulnerable a single market can be. It makes sense therefore to have a good chunk of money invested further afield than the shores of New Zealand and Australia.
If you’re investing internationally you can choose between investing in developed markets, such as Australia, the United States, Western Europe and Singapore; or emerging markets, which tend to have greater returns. Ignore emerging countries at your financial peril.
The big thing in emerging markets investments over the past decade have been the so-called “BRIC” countries. The acronym BRIC stands for: Brazil, Russia, India and China, which between them house 40% of the world’s population. The idea is that these markets are growing faster than ours could ever hope to.
For many the BRICs are old hat. The new buzzword in emerging markets is CIVETS: Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
The term CIVETS was coined by Jim O’Neill of Goldman Sachs and these markets are being touted as the “new BRIC in the wall of international investing”.
O’Neill also coined the Next Eleven or N-11, which includes eleven countries that have a high potential of becoming the world’s largest economies in the 21st century. These include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam.
Investments in emerging markets such as these do of course carry risks for investors. Their economies can falter as we saw in the Asian crisis of the late 1990s. Having said that, New Zealand and even larger economies such as the United States and Britain carry risk as well and one of those risks may be that your capital isn’t growing as fast as it could.
It’s nigh impossible to buy direct investments in the likes of Indonesia, Brazil or even Turkey, which means the obvious choice for many investors is a managed fund or exchange traded fund.
At the less volatile end are global funds of funds. Or if you want to take some risk, buy units in an emerging markets smaller companies fund.
For example, AMP Capital’s Global Shares fund invests in companies based in developed economies such as Apple Inc, Vodafone Group, Amazon.com, Allianz SE, Google Inc and Goldman Sachs Group.
At the other end of the scale AXA Emerging Markets fund invests in countries such as Brazil, China, Mexico, Russia and Korea. Albeit, the words “other end of the scale” might be pushing it a bit. The fund invests in large proven companies based in emerging markets
It’s worth reading AMP Capital chief strategist Shane Oliver’s report: Where to invest in a trouble world? Oliver has his bets on Asian and emerging market investments. These markets offer strong growth potential as industrialisation continues.
Demographics are in these countries’ favour, and they have fewer structural debt constraints than many developed nations. “Finally, they are trading on a similar price to earning multiple to developed countries despite their better growth potential and lower macroeconomic risk,” says Oliver.
Here are some other resources:
New Zealand investors have a shocking home bias. Many DIY investors plough their money solely into New Zealand-based investments. In part it’s because that’s what they know. Local investments are also easily accessible.
Forbes.com Emerging Markets
ft.com beyond brics