Francois Briand Student Intern
Capital Markets Research
In this 15-page study, authors Wenling Lin and Francois Briand explore four conceptual reasons for investing in emerging market equities-managing risk by diversifying among asset classes, broadening investment opportunity sets, capturing good sources of potential alpha and active risk diversification, and garnering the more sustainable benefits of economic growth that are being made possible by structural reforms.
Given lower sovereign risk and fair valuation, they contend emerging market equities are still attractive. At the same time, considering the traditionally higher risk of this asset class, they caution investors to avoid chasing returns by adopting a longer investment time horizon and good investment discipline.
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Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets.
