How to invest in emerging markets?
2017-08-07 00:00:00
Emerging markets offer good potential of return for investors looking for long term investment and ready to take more risk.
However it is very difficult, in not impossible, for most of the retail investors to invest directly in an emerging market by opening a brokerage account in the country.

The good news is that there are a lot of possibilites to invest in emerging markets through your US brokerage account.

There are basically 3 ways to invest in emerging markets:
- invest in ADR
- invest in funds / ETF dedicated to emerging countries
- invest in US companies that have a strong presence in emerging countries

As you can immagine, all these options have pros and cons.

Invest in ADR
PROS: ADR is equivalent to holding directly a share of the company. This is the best way if you want to pick your own selection of stocks. You receive dividends like any shareholders. Fees are generally lower that for a fund.
CONS: you need to know the country and the company you are investing in. Tax implications needs also to be adressed as for most ADR tax is deducted at source from dividend distribution in the country of origin of the company. Liquidity can also be an issue. Last but very important limit ADRs some countries have a very limited presence in ADR (e.g. India).
List of ADRs by Country

Invest in funds / ETF dedicated to emerging countries
PROS: This is the hassle free way. Professional and experts of these markets select for you a portfolio of companies. Diversification also reduces risk of the investment.
CONS: fees are there and might eat up a significant part of potential profit. Some funds might be overly invested in company of emerging countries that actually does not correlates with the domestic markets (e.g. commodity companies).

Invest in US companies that have a strong presence in emerging countries:
PROS: solidity and history of the company is easier to check. All works exactly the same as for any US based companies.
CONS: to identify the percentage of business done in emerging countries is a long and tedious job. And it might be difficult to know which profit is generated from emerging countries.