Question

Identify and explain two (2) of the common characteristics of emerging markets as an asset class?

Answer 1

To answer this question we need to understand two things which are given in this question:

(1). What is an emerging markets: Emerging markets refers to the economies that are experiencing considerable economic growth and possess some but not all, characteristics of a developed economy.

These are basically the countries that are transitioning from the developing phase to the developed phase.

(2). Asset Class: An asset class is a group of investments that exhibits the similar characteristics and basically they subject to the same laws & regulations. equities, bonds, derivatives etc are examples of same asset class.

Two common characteristics of emerging markets as an asset class:

(1). Market Volatility: The movements in the price of securities are considered as investor friendly, market volatility occurs because of the political conditions, external price movements, and because of the changes in the supply and demands. Volatility exposes the risk movements in stock exchanges as well as market performance. These movements in prices are similar across different asset class of an emerging markets which is again subject to the supply and demand conditions.

(2). High rates of economic growth: Emerging markets have that potential to grow faster as compared to other markets, this is because of the governments of emerging markets implements such policies which are in favor of these markets and can help in the growth of these markets. The policies implemented by the government lowers the unemployment and increases the disposable income, investments and also boosts infrastructure in these economies.

Examples of some emerging markets as an asset class are:

(i). Brazil

(ii). Russia

(iii). India

(iv). China