WHAT IS RISKIER, GLOBAL INVESTMENT-WISE, THAN DEVELOPING MARKETS?

Many people assume that there are just two types of national economies, “Developed” or “Developing”.  But that is certainly not the case, at all. There are still nations, mostly in Africa, where people subsist on just a few dollars per day.  Such economies haven’t even begun to develop!

And other people have observed the rising tides, year-by-year, and realize that their homes, and their towns, will be inundated, within a decade or so.  I will try to explain more of this, in future posts—from personal observation and study—about why some nations are evolving, and others are not.

There are three main categories of market development:—Developed, Developing and Frontier.  A brief explanation is follows:

Developed Markets:  are the easiest to identify, since they are the generally some of the largest economies; have attained a certain level of industrialization; posses reasonably large and efficient stock, and oftentimes bond, markets, and a stable currency.. Relatively high levels of education prevail, thus enabling a more capable labor force.  As you can, the top investments in rude many global companies.

Developing Markets display economic advancement in the above-cited categories; however, they might be more advanced in some areas, and less so in others.  Because there is more risk in less-advanced economies, home-grown large corporations are scarce, due to the more elementary capital structure, and a shortage of foreign investment.  At least here, there are a few names of corporations that you are familiar with.

Categorization is somewhat judgmental, since South Korea is considered “developing” by some indexers; however, it is home to some of the world’s largest corporations, has a per capita income of 79% that of Japan, a highly educated labor force, and its per capita GDP is expected to surpass that of Japan and France perhaps by around 2020.

Frontier Markets are a catch-all category for nations that generally have: poorly-functioning economies; stock and capital markets, if any, are inefficient; most economic functions take place at the village level, often by barter; central governments are usually dysfunctional; and education is minimal.  I doubt there are any familiar corporations in this group.

I have linked Fact Sheets of an ETF for each of the three categories. The iShares
ETFs have some of the highest trading volume; which, I believe makes them more liquid. Also, by using the same company’s ETFs, at least for my purposed in this post, the companies, countries and industries represented would be in the same location on the Fact Sheets.

NOTE:  There are other ETFs, as well as actively-managed mutual funds, which would provide a range of investments in the same market categories.  Please compare the various options in the event that you invest overseas.

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