Asset Class Description: Emerging Market Stocks

Stocks in companies in the 30 or so “emerging” markets are dominated by Asia (predominantly Taiwan and Korea) at over 50%, Latin America (20%), Africa and the Middle East (20%) and some smaller European countries are, collectively, considered an asset class. An investment in emerging markets as part of your asset allocation strategy, is important in an ETF portfolio because it gives you better diversification which lowers risk. Investing in emerging market stocks represents the high risk, high return basket because you own companies in countries that are in an intermediate stage of development. Their economies are still developing and their stock markets are still gaining global clout. Greece and Portugal recently moved into the developed world from the emerging. . But just because these countries might be growing at record levels, stock prices don’t necessarily rise because their economies and governments are “emerging.” Shareholders benefit when companies grow after-tax profits. Governments of these countries might have onerous tax rates, state-sponsored price controls, securities laws that are not evolved or enforced where shareholders are shafted, corruption, or risk of wars and violence to mention a few. Are of these elements make these economies and their stock prices highly volatile.