Emerging markets offer investors a unique opportunity to tap into the dynamic growth of developing economies. With 80% of global economic expansion originating in these regions, they provide access to industries and innovations shaping tomorrow’s world. Despite their volatility, emerging markets can act as a catalyst for long-term portfolio growth, rewarding investors who understand their potential.
Emerging markets account for a staggering share of global growth and consumption. According to the International Monetary Fund, these regions contribute close to 85% of global consumption growth, driven by industrialisation, youthful populations, and investments in education and infrastructure. Exporting raw materials and low-cost goods to wealthier nations further underscores their competitive edge. While their reliance on commodities introduces volatility, this also creates periods of significant opportunity, particularly during economic booms.
Success stories such as South Korea and China illustrate the transformational potential of emerging markets. South Korea’s rise from a developing economy in the late 20th century to a global hub of innovation exemplifies what can be achieved with the right policies and industrial strategies. The nation now houses corporate giants like Samsung, Kia, and Hyundai, showcasing the rewards of market-friendly reforms and international investment. China’s remarkable journey since 1978, with annual GDP growth averaging nearly 10%, is another testament to the promise of emerging markets. Global companies like Alibaba and Tencent exemplify its integration into the world economy.
For investors, emerging markets offer a high-growth component that complements more stable developed market holdings. These investments perform particularly well during global growth periods, much like high-growth stocks in developed markets. However, their inherent volatility means they are best suited as a smaller allocation within a diversified portfolio, often ranging from 5% to 10%. Broader international funds, including both developed and emerging economies, can provide exposure with reduced risk.
Emerging markets’ growth can be likened to a rubber band—expanding significantly during favourable conditions and contracting in downturns. While their unpredictability requires a cautious approach, their potential to drive long-term returns makes them a valuable consideration for investors seeking diversification and global exposure.
Emerging markets comprise countries experiencing rapid industrialisation and economic expansion. They provide growth opportunities through sectors such as technology, manufacturing, and commodities. By investing in emerging markets, investors can gain access to some of the most dynamic economies in the world.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
