The Emerging Financial Markets: Do they represent a Viable Investment Opportunity in the Current Climate?

Sun, Oct 12, 2014


Despite considerable growth in recent times, the tide of the global economy is beginning to turn. More specifically, the European and U.S. stock markets have seen a sharp and sudden decline during the last week, as fears over a potential recession have gathered momentum and had a huge impact on financial traders.

With the global property market also facing a potential crash, investors are being forced to adopt a risk-averse amid swathes of disappointing economic data. Both the FTSE 100 share index and the Dow Jones have fallen by 1.4% and 2% respectively as a result of this, while Germany’s Dax also tumbled to a depressing twelve month low.


The Investment Choices of Trading Firms and Market Operators

While it stands to reason that traders are adopting a more conservative philosophy in the current economic climate, however, it is interesting to note that trading firms will also be forced to re-evaluate their spending strategies. Perhaps the most popular step will be to diversify investment options and distribute capital across a wider range of products, as this can help to minimize risk in a declining economy. Given the nature of market cycles and the underlying rules that govern economic change, the development of a diverse trading portfolio ensures that traders will retain as much of their capital as possible.

If the response to the recent global recession is anything to go by, investors may be inclined to expand their portfolio into the emerging markets. After the 2008 fiscal crisis had decimated developed economies, financial market traders capitalized on low company valuations in emerging nations such as China to maximize potential returns. Although growth in the emerging markets may have declined amid slight stagnation in Eastern Europe and Latin America, these entities still offer considerable value to investors and reduce the risk of generating significant losses.


How Should Investors react to a Decline in the Global Market?

While diversification may be considered as a fundamental requirement of any long-term investment strategy, it is most effectively used during times of economic decline and hardship. After all, a period of economic transition can hit investors in their hard, especially if the majority of their capital is committed to a struggling market that is unable to generate returns.

While those with a diverse investment portfolio cannot avoid the impact of recession entirely, however, they can at least minimize losses and maximize profitability in the short-term. By entering the emerging marketplace and remaining loyal to secure investments such as gold, it is possible to ride the waves of economic hardship and emerge with a bright and lucrative future.

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