Question

Why do portfolio managers often add securities issued on emerging markets in spite of the high risks associated with these markets?

Answer 1

Reasons why portfolio managers add securities issued on emerging markets inspite of the high risks associated:

1. Emerging markets have been an attract investment since the 2000s due to new funds popping up all the time.

2. The risks of investing in these markets are high due to their uncertain nature of these markets and owing to the uncertain future micro and macroeconomic factors.

2. However, as the saying goes ' high risk often leads to high rewards', hence such huge risks can help the inevstors in earning huge returns as well.

3. The lucrative gains in such markets can be a huge motivation for the investors to go ahead with them.

4. Portfolio managers wish to capture the emerging markets' growth potential and maximise their clients' portfolio value.

4. Also, an efficient portfolio manager would focus on portfolio diversification by including such risky assets and combining them with riskless assets like Treasury bills etc.