That's just an example. I prefer to own far more equity than debt myself in general. Most investors do like to diversify their assets eventually - stocks, bonds, commodities, etc.
Curiously enough, I only trade in third world markets - JSE in South Africa. It's stable and secure enough. And I live there . What you probably would find is that there isn't the sheer number of stocks you are probably used to. The other confounder is that you have to deal with exchange rates changing. The USD is probably going to get stronger over the near future, which means your investments in other (esp. emerging market) currencies will lose value against the USD. I'm actually opening an account that will give me access to US stocks for that very reason - the change in exchange rate will sweeten my returns. S'pose it depends on your view on the strength of the USD.
You are investing in 3rd rate governments with 3rd world infrastructure when you give your hard-earned to a 3rd world company. Any firm with that kind of a headwind isn't going to be a goldmine in a hurry and if they do make it, then you can guarantee that someone in charge over there is going to expect their own financial contributions or else. Too risky for me..
I don't have any investments at the moment but its an area I'm actively working to try and develop a full understanding of the challenges involved. I think there's significant opportunity to strong returns only if one understands the market conditions and doesn't try to apply the same 'rules' as we do to making investments in the developed world. A friend of mine recently took up a position with a boutique PE house with a focus on investing in West Africa. According to his observations, western firms are coming in and trying to apply these same rules, and often are turned away because asset owners simply do not understand the language they speak. I think a good marriage between personal knowledge and the firm/fund you invest through could see really spectacular returns, especially when you consider the innumerable opportunities that exist companies to grow rapidly within even the most common sectors.
My dad told me that his former coworker who is currently living in the Philippines has been investing on the Philippines stock market for years and he said that the average annual return is pretty high (he said that an annual return of 30 percent is a given even though there are other investors that can make more than that). Granted, he researched the local markets, listened to local rumors, and bought a lot of books about stock market in Philippines. However, he said that it is not as scary as what people from the first world country think it is. Sure, it is riskier than US investments but the level of risk is lower compared to the return. I know a lot of people mentioned corruption but he said that big local private companies are less likely to be affected by it (even if they are owned by locals) and they are the best investment that he can make up there. Correct me if I'm wrong, but isn't Bre-X a scam by Canadian company claiming to have mines in a third world country. If that is the case, isn't it a little different from investing in a 3rd world markets?
I do not think that the risks are as high as you think ,I do believe the risks are lower, that is why many people are trusting and investing in the third world markets.
I would be afraid that I was investing in terrorism or some illegal scam. You have to be very careful when you are working with investments you know little about. It is probably better to just stick to the investment companies you are well aware of. I would not want to get caught up in anything illegal.
Many investors are into the the 3rd world markets right now, I do not think they are making a mistake, there are all kind of investments to be made.
It's interesting that I came across this thread today, because I LIVE in a 3rd world country, so any domestic investments I make is automatically going to be an investment in a 3rd world market. It's just like the 1st world markets really. You got your volatile stocks and you got your reliable stocks. One thing that's different here than in the US is that land is MEGA expensive here, and there's not really a guarantee that you'd get your money back or make any profit at all. My mum bought a piece of land in an area that was supposed to be up and coming. Fast forward a decade and it's basically just there, losing money
I'd advise investing in the equity funds that look into emerging markets. Those funds tend to spread their investments across countries and companies - you're unlikely to lose a lot if in case one country enters a crisis compared to if you entered the market yourself (through online trading, etc.). I'd advise also that you do your homework on the countries you're interested in. There is a lot of money to be made on them (especially those in the Southeast Asian region). With regard to concerns on debt and capital adequacy? You'll be surprised to learn that much of the blue chip companies in those countries are well funded and have their debts in tow. Developing countries of 20 years ago (the crisis-riddled and war-torn ones) are few nowadays.
