Investing in Asia, Emerging Markets or globally?

When you get started with investing, one of the most important considerations is where in the world you want to invest your money. And while there’s no quick answer, it’s important to remember that different geographic areas offer different advantages for investors, and indeed have different risks.

The global economy is made up of a myriad of countries at different stages of their development. Countries such as the USA and UK have well-developed, highly industrialised and service-based economies. Meanwhile nations in developing regions, such as Asia or South America, have younger economies that are still undergoing major aspects of industrialisation and political change.

When investing by region it is important to first consider what your goals are. Investing in Asia or Emerging Markets, for example, are likely to offer a more growth potential than developed economies like the UK, US and Europe. As such Emerging Markets are arguably more enticing regions for investors focused on growing the value of their portfolio, as opposed to investing for an income.

If you’re not sure whether to focus on a specific region, investing in a “globally-focused” fund is perhaps the best choice for someone who wants to capture a selection of all the best companies around the world.

Asia

Asia arguably has two different regions in its own right – Japan and the rest of Asia. Japan is similar to the likes of the US and UK in many ways. It is highly-developed and has big companies that are already leaders in their markets, so it has less rapid economic growth than the rest of Asia. Japan also has demographic issues such as an ageing population, which sectors such as the US and UK will likely experience in the future, which means less potential for rapid future growth.

Meanwhile, the rest of Asia is much more growth-focused, because most of the economies in the region, like Thailand and Malaysia, are at an earlier stage of growth and development. In particular, unlike Japan, developing Asian countries often have burgeoning middle classes with newly disposable incomes and potential for consumption that drives new economic growth. This makes it a good option for anyone who is primarily focused on growing the value of their investments over time.

Countries such as China, Indonesia and Vietnam, have experienced exponential growth in recent times. China in particular has gone from a very minor economy to a powerhouse with massive fast-growing companies like Alibaba, Baidu and Tencent. As a result, China forms an important part of many investment funds focused on Asia.

Emerging Markets

Emerging Markets are not fundamentally dissimilar from Asia, but have a wider global remit to invest in developing economies around the world. In the past the acronym BRICS, meaning Brazil, Russia, India, China and South Africa, became widely associated with Emerging Markets. These economies had become some of the fastest growing in the world and therefore were a focus for investors.

But recently the acronym has fallen out of favour as the fortunes of these different nations diverge. China and India’s growth stories have soldiered on, whereas economies such as Brazil and South Africa have faltered.

More broadly though, an Emerging Markets fund will focus on finding the best companies from any developing countries around the world. This could be from a BRICS country, or any other, be it Argentina or Angola.

Like Asia, Emerging Markets investments are a good option for someone looking for significant portfolio growth. As these economies are still catching-up with Western counterparts, they offer the greatest potential for growth.

However, there is a much greater risk involved in investing in Emerging Markets compared with more developed regions. This is because those economies tend to be a lot more susceptible to global economic events, political troubles and often have more fallible governance than developed economies.

For example, once upon a time Venezuela was a posterchild of post-war growth and prosperity, with a booming oil industry and wider economy to boot. But in recent times it has fallen foul of corruption and bad governance, and has generally become a no-go area for investors. While it isn’t certain that this kind of extreme example will repeat itself elsewhere, it is something that is a part of the risk.

That being said, many quality investment funds and managers will take these kinds of concerns into account when investing and will avoid where necessary. While the risks associated with Emerging Markets are higher, ultimately for someone with a long investment time horizon, it may be one of the best options for growth.

Global

Finally, for those investors who are perhaps undecided as to which region is best for them, investing ‘globally’ could be the best compromise. Investment funds that have a global remit have the widest possible options available to them – being able to more or less pick any company around the world that may help progress the fund’s objectives.

Investing globally also has the benefit of much greater diversification for an investor – a key aspect to protecting the overall value of a portfolio. By diversifying your assets globally you minimise much of the risk that exposure to one single region or economy might have for your investments. A global sector fund will aim to select the best of the bunch from a broad range. This may ultimately lead to more modest growth than Emerging Markets or Asian focused funds but is arguably a less risky option.

To get an idea of investment funds for all of these regions that take advantage of opportunities for growth and income, check our list of rated funds from our investment analyst partner, Square Mile.

Read Which region should I invest in - UK, USA or Europe?

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