August 10, 2022

Emerging Market News & Investment Options

 Emerging markets can provide investors with some excellent investment options and staying on top of emerging market news is the best way to find opportunities that might suit your portfolio.


What Are Emerging Markets?

Countries or regions tend to be categorized as Developed, Emerging or Frontier markets. There are various companies and stock exchanges that make a determination about which countries should be placed in which category.


Developed markets include the United States, Japan, the United Kingdom, Canada, Australia, Hong Kong, South Korea and many more. Emerging markets include countries such as Mexico, Brazil, Egypt, South Africa, India and others. Frontier markets include countries such as Kenya, Nigeria, Romania, Pakistan, Iceland and Vietnam.


How Are Countries Classified?

For instance, MSCI Inc., a New York-based finance company has created its own market classification system. Other well-known index classification systems include the S&P Dow Jones Indices and the Financial Times Stock Exchange (FTSE). Generally, the classification lists they produce are similar, but they dont always agree 100% on a countrys classification. 


Lets take South Korea as an example. S&P lists South Korea as a developed market, while MSCI lists this country as an emerging market and FTSE lists South Korea as an Advanced Emerging Market.


Countries are classified based upon several factors. For instance, access to the market itself is a factor. In the United States or Japan, it is generally very easy for investors across the globe to access our stock markets while it can be more difficult to access the markets in emerging markets such as Poland, Turkey or Peru.


The countries also are judged on their overall economic development and the stability of their economy, currency and government. Russia is a good example. Since the fall of communism, Russia began to transform from a completely closed society to an emerging market where investors had much greater access to the market.


The recent invasion of Ukraine, however, has added a great deal of instability, and this country has been recategorized by many of the organizations that rank these nations. MSCI moved Russia from emerging market status to standalone status while Russia no longer appears on the S&P Dow Jones or FTSE market classification systems.


Iceland is an example of how access to the market economy affects a countrys standing. This European nation has a stable government and a high standard of living, but it is still categorized as a frontier market because its just not all that easy to access investment opportunities in Iceland.


In general, with both emerging markets and frontier markets, these are countries that are poised for fast growth. For investors, investments in emerging markets potentially can provide high-yield results although they might also come with a higher risk than some investments in developed markets.


Of course, even in developed markets, there can be volatility. For instance, every time the Federal Reserve decides to institute a rate hike, this can affect the market, as interest rate changes have a direct effect on the economy. During the recession, as real estate crashed, this also affected our economy.


However, unlike an emerging market or frontier market, our long-standing economy and stable government make it easier for our developed nation to endure market fluctuations and even issues such as the COVID-19 pandemic.


More Risk? Higher Returns?

In theory, emerging market investments carry a higher-level risk, but also the potential to yield higher returns on investment. Emerging and frontier markets tend to be growing at a fast pace and with a younger population base, the need for goods and services continues to expand.


Whether you invest in an emerging market, frontier market or developed market, there is never any guarantee that your investment will prove beneficial to your portfolio. Even Fortune 500 firms go bust. Take General Motors as an example. Founded in 1908, it was one of the biggest car manufacturers on the planet and one of its presidents famously stated, whats good for GM is good for America. 


Fast forward to the recession of 2008 and you find a company riddled with mismanagement that failed to keep up with the times. Eventually, the company was bailed out by the U.S. government and reorganized into a new company. This is just one example of a so-called solid investment that failed, and there are plenty of other examples, including Blockbuster, Kodak and more.


The Power of Diversification

In general, the best option for investors is to build a diversified portfolio that includes some stable, long-standing companies that produce steady growth to build for the future as well as selecting some investment options that potentially can provide you with some higher short-term earnings.


Its often wise to consider investing in mutual funds or exchange-traded funds (ETFs) as these are diversified to include a variety of holdings, rather than simply investing in a single company. Real Estate Investment Trusts (REITs) are another option to consider. These are companies that either own or finance real estate that produces income. They might own apartment complexes or finance homebuilders, etc.


All investments carry a certain amount of risk, and the best advice we can give is to diversify your portfolio and keep a close watch on the market and your investments. While a trusted financial planner can be a great asset, you still need to do some research and read up on market trends and potential issues related to your investments.


Before purchasing shares in a mutual fund or ETF, research the holdings in the fund. Study how the fund is weighted and pay particular attention to the top ten holdings, as they tend to affect the overall performance of the fund the most.


Options For The Africa Investor

At Money Watch Africa, our focus is mainly on helping investors find investment opportunities in Africa. Several nations in Africa are classified as emerging markets or frontier markets.  


MSCI classifies Egypt and South Africa as emerging markets in Africa, while FTSE classifies South Africa as advanced emerging, and Egypt as secondary emerging. Several other nations are listed as frontier markets by FTSE, including Cote dIvoire, Ghana, Kenya, Morocco, Nigeria, and Tanzania.


MSCI lists Kenya, Mauritius, Morocco, Nigeria, Tunisia and the West African Economic and Monetary Union (WAEMU) as frontier markets. WAEMU includes Benin, Burkina Faso, Cote dIvoire and Senegal. MSCI also lists Botswana and Zimbabwe on its standalone index, two countries that are poised to gain frontier status as their markets improve and expand.


If you wish to invest in Africa, opting for an Africa ETF, such as a South Africa ETF can be one of your easiest options. There are also emerging market funds and frontier market funds, and some of which may be focused on Africa-based companies. Again, just research the companies in the fund and the fund managers to discover if this is the right fit for you.


Discover The Latest Emerging Market News

The websites for MSCI, FTSE and S&P Dow Jones can be excellent resources for emerging market investors. At Money Watch Africa, we also update our website with emerging market news, particularly as it relates to Africa investing, so be sure to check back from time to time to find possible investment options for your portfolio.

July 10, 2022

5 Tips For The Africa Investor

If you are seeking new financial opportunities in which to invest, Africa can be an interesting option to explore. With more than 50 countries and thousands of investment options, the African continent is rich in natural resources and industry and infrastructure continue to expand.


Who Is The Africa Investor?

The Africa investor is someone who isnt immune to taking occasional investment risks, and also possibly an individual that seeks to help bolster the economies of this vast continent. Additionally, this may be an individual interesting in boosting their portfolio by investing in natural resources, including exploration and mining. If you are interested in investing in Africa, here are a few facts to consider.


1. Emerging Markets In Africa Vs. Frontier Markets

When investing, you have the option of investing in companies in established markets, emerging markets and frontier markets. Established markets, such as the United States, Japan and the United Kingdom have long-established stock markets and stable currencies.


Investing in an established market is not without risk, but there tends to be less risk than with an emerging market or frontier market. Emerging markets generally include countries with fairly stable governments and economies. For the Africa investor, Egypt and South Africa are the only African countries listed as emerging markets.


Frontier markets are a step below emerging markets, typically nations poised for growth, but with historically low market access. For instance, Iceland, with one of the worlds highest standards of living is a frontier market. Iceland has a stable economy and currency, but investment opportunities have been limited, therefore, it is listed as a frontier market.


In Africa, frontier markets include Kenya, Mauritius, Morocco, Nigeria, Tunisia and the West African Economic and Monetary Union (Benin, Senegal, Cote DIvoire and Burkina Faso). These are considered somewhat riskier investments than emerging market investments but can be highly profitable, as well. 


Additionally, Botswana and Zimbabwe are listed as standalone countries, and these are typically nations poised for growth that have not quite reached frontier market status. Any of these options (emerging, frontier or standalone) can be profitable, although, as with any investment, profit is never guaranteed and even companies in established markets can yield poor returns.


2. An Africa ETF Can Be An Easy Option

Exchange-traded funds are diversified funds with multiple holdings, which can decrease risk. If one of the companies in the fund experiences trouble, the other holdings can help to keep the price of the ETF stable.


Whether you opt for an emerging market ETF or a frontier markets ETF, choosing this type of fund can help to minimize your risk. Because market access to many countries in Africa is limited, an ETF also provides you with an easy way to gain access to companies in Africa.


There are many options to consider. For instance, you might opt for a South Africa ETF or an Egypt ETF or perhaps an Africa ETF that includes holdings throughout the continent. These can be bought and sold easily using your broker or even online brokerage firms.


3. Consider The TSX Venture Exchange

Weve all heard of the NASDAQ and the New York Stock Exchange (NYSE) or exchanges such as the Nikkei in Japan or the London Stock Exchange, but there are many others out there and a few are classified as venture exchanges, which include companies that are considered to be emerging.


While you will find investments such as Google, Apple and Microsoft on the NASDAQ, a venture exchange will include smaller companies around the world where you can purchase shares. For instance, the Toronto Stock Exchange (TSX) includes the TSX Venture Exchange Market (TSXV) and if you have a brokerage account that supports foreign trading, you can purchase shares in this market.


The TSXV offers a wide range of emerging companies from countries around the globe, including countries in Africa. This can be one way to gain access to countries in specific African nations or for a specific company or industry that interests you.


4. Research Each Holding Carefully

Whether you opt for an Africa ETF or select a company on the TSXV, research is going to be your strongest ally. It is important to research each company, whether you are purchasing stock from just one company or for many companies listed in an ETF.


With an ETF, you can study fact sheets to determine the top 10 holdings in the fund. An ETF might include 20 or more holdings, but typically the percentage of net assets is concentrated more heavily in some companies than others and the top 10 holdings can make up 50% or more of the fund, so these are the companies that you will want to research the most carefully as they have the potential to impact the overall performance of the ETF more than other holdings.


For instance, perhaps the top holding makes up 5% of the entire ETF, while the bottom holding makes up just 0.23% of the fund. If the bottom holding earns poor returns, it probably wont affect the overall performance of the fund severely, whereas a company that holds 5% of the net assets in the fund can make a bigger impact if it earns well or loses money.


If you opt to invest in a specific company rather than using an ETF, spend some time getting to know the company and its players. While the company website can be informative, it is smart to see what others say about this particular investment, so search the internet far and wide to find out all that you can about the company. This is particularly important with investments in emerging and frontier markets, as these can be riskier in general.


5. Balance Out Your Portfolio

A balanced portfolio includes many investment options that yield slow and steady results, but it also can contain a few short-term investment options to yield quick profits. As the old saying goes, you never want to put all of your eggs in one basket, but that doesnt mean the occasional riskier investment option is a bad idea.


It can be smart to invest in some tried-and-true companies with high stability, but it also can be wise to take a few small risks now and then as this can improve the overall profitability of your portfolio.


Of course, for the Africa investor, there may be other reasons why you decide to invest in Africa. Perhaps you are searching for socially responsible investment options in which to invest. Africa can be an excellent option because when you invest in Africa-based companies, you can help to boost the local economy.


The trick with socially responsible investing is to ensure that the investments include companies owned by Africans and not foreign companies seeking to invest and make a quick profit in Africa. Additionally, you will want to research other factors such as working conditions, environmental impacts and how the companies give back to their community.


At Money Watch Africa, we are here to help the Africa investor learn more about investment opportunities and how to invest in Africa. Keep checking back as we continue to update our website with informative articles about investing in this diverse, dynamic continent.