The Big Categories of Investment in Emerging Markets
If you're an investor looking to capitalize on some of the world's emerging markets, know this: You can invest in emerging markets in two ways — buy securities as an investment or invest directly as a business.
Purchasing securities: The most common way for individual investors to participate in emerging markets is through purchases of securities such as stocks, bonds, or mutual funds, which give people exposure to the potential in emerging markets without the headaches of actually running a business. You have a huge range of ways to invest in securities in emerging markets.
You can invest from your home country through mutual funds or international securities listed on domestic exchanges. You can buy securities traded in other markets if your broker can handle the trade (and most can these days).
You can find hedge funds that accept minimum investments of millions of dollars that seek out opportunities in emerging markets, or you can commit just a few dollars to a microfinance fund to help very small businesses get underway.
You can make related investments such as cash or real estate.
And in most cases, you can buy or sell with little fuss when your circumstances — or those in the target country — change.
One way to invest in the more than 2 billion people who want the same consumer goods that Americans and Europeans enjoy is to invest in multinational corporations. Most of the largest food-, beverage-, and consumer-product companies have a presence in emerging markets, and in many cases, they get much of their growth from sales in those places.
Owning a business: Foreign direct investment involves starting a business, opening a subsidiary, making an acquisition, or otherwise expanding an operating company into an emerging market. It involves making a major commitment of time, money, and energy to a country that may not have a lot of experience hosting international businesses. Foreign direct investment isn't easy to get started in or to pull out of if the project fails. For the most part, only large companies pursue direct investment, although some entrepreneurs have been known to run off and start new ventures in lands far from home.
There are plenty of challenges inherent in foreign investment — especially if you want to become a foreign direct investor. But much of the investment information you learn will apply to direct investment as well as securities.