Analysts are divided on how markets might turn out under the Trump administration. From overhauling the tax code, to repealing the Affordable Care Act and renegotiating trade deals, Trump’s plans can have massive implications for businesses, consumers, and investors. Uncertainty remains high as the new president has never been in public office. In other parts of the world, meanwhile, similar dilemmas exist. The likes of Brexit, Abenomics, the ongoing refugee crisis, and the deceleration of growth in China, among others, are major concerns that can have direct impacts on the various segments of the global economy. As such, portfolios need to be more resilient, adaptable, dynamic, and diverse. Investing internationally, with focus on emerging markets, then becomes a viable option.
- Diversification and access to rapidly growing companies
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Stock markets all over the world were not made equal. They behave differently at various points of the economic cycle and across numerous geographic regions. A stock market in Asia might be bullish, but that does not mean that its European counterpart enjoys the same. Investing internationally offers portfolios an additional layer of protection from volatility in individual markets.
Of course, many of the world’s best companies are in the U.S., the U.K., Japan, or Germany, making these markets great avenues to grow money on the long term. However, in some other countries, ‘less known’ businesses are showing great potential into becoming the next Amazon, Volkswagen, or Samsung. These companies are equally innovative but are yet to reach their economic peak.
- The potential for higher growth, higher income
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In emerging markets, growth has so far been stronger than that of mature, developed markets. In 2015, Myanmar posted a GDP growth of 7.00 percent, Uzbekistan at 8.50 percent, and Ethiopia a whopping 10.20 percent. By comparison, the United States only grew by 2.60 percent and Japan by 0.60 percent in the same period.
For those investing in bonds, some countries offer much higher interest rates than others. Figures can have stark differences, especially versus developed markets where yields have been pushed down to historic lows, reflected in not-so-impressive income.
- Young, dynamic, and educated workforce
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Sustainable economic growth is largely anchored on a healthy, educated, and productive workforce. However, as in the case of Japan, the ageing population is making a significant impact on areas such as social welfare, public health, and economic prosperity. The likes of Canada, Germany, France, and many other equally prosperous countries have a median population age of older than 40 years old. This may translate to higher spending on healthcare and increased dependence on the relatively smaller young working population to drive growth.
Newly industrialized countries like the Philippines, Iran, Mexico, and Turkey (who all belong to the Next Eleven Economies) have relatively young workforces, allowing for a potentially more ambitious and energetic manpower. A demographic sweet spot is expected to accelerate economic growth in these countries. To further emphasize just how important it is to have a predominantly young labor pool, many of today’s most successful entrepreneurs are considered millennials—and most of them have great contributions to the rapidly digitalizing world.
Investors who limit themselves to investing in just one country are missing out on a world of opportunities. Fortunately, there are offshore financial services companies that can help investors expand their horizons and have access to global markets with relative ease and security. This should make it a lot more convenient for them to tap into new and state-of-the-art investment instruments and boost their portfolio’s potential for robust and sustainable growth.
For more information about international investing, read blogs on LOM Financial.