Risks of Emerging Markets

There are many risks in investing in emerging markets. Although emerging markets are unlikely ever to comprise more than a small percentage of any investment option, MMBB wants you to understand the special risks these investments carry. These risks, not usually associated with developed countries, include but are not limited to:

  • a lack of public information about foreign companies;
  • lower trading volume and less liquidity in foreign securities markets than in developed economies;
  • greater price volatility in foreign markets than in developed economies;
  • less government regulation of foreign issuers, exchanges and brokers than in developed economies.;
  • a lack of uniform accounting, auditing and financial reporting standards in developing counties compared to those applicable to issuers in developed economies;
  • fluctuations in the value of foreign investments due to changes in currency rates;
  • the expense of currency exchange transactions;
  • greater difficulties in pricing securities in emerging markets;
  • government restrictions on investments by non-local entities;
  • higher brokerage commission rates than in developed economies
  • increased risks of delays in clearance and settlement of portfolio transactions;
  • unfavorable differences between developed economies and some developing economies;
  • greater difficulty in commencing and pursing lawsuits or other legal remedies;
  • less regulation of banks and securities depositories;
  • increased risks of loss of certificates for portfolio securities;
  • government restrictions on the repatriation of profits or other currency control regulations;
  • the possibility in some countries of expropriation, confiscatory taxation, political, financial or social instability or adverse diplomatic developments; and
  • the reduction of income by foreign taxes.