Travel Journal: Getting to Know Foreign Investments

By: Jan Paul C. Ferrer

 

This article explains that before investing in overseas markets, it’s important to understand the differences between developed and emerging markets and the risks inherent to each.

Foreign investments can play an important role in helping to diversify a domestic equity portfolio. But before plunging into international waters, it’s important to understand the differences between developed and emerging markets and the risks inherent to each.

Emerging Trends

Once upon a time, the United States was considered an emerging market. In the late 1800s, British financiers, noting America’s growth potential, invested in the companies that were building the nation’s infrastructure, particularly the early railroad companies. In doing so, they were accepting more risk than they would have with investments in their own market. The United States, after all, was still maturing, and political and social change, as well as many other factors, could have made it a volatile investment market.

The same risk/reward characteristics apply to today’s emerging markets, which are found in every corner of the globe. Because they are still maturing, they may have more room for growth than long-established markets, such as the United States. But because the road to maturity is not always a smooth one, there may be bumps along the way.

In general, emerging markets have three characteristics:

• Low or moderate personal incomes.

• Economies that are in the process of being industrialized.

• Financial infrastructures, including stock markets, that are still being developed.

A developing infrastructure is what may give an emerging market its growth potential. For example, in an emerging market an industry such as banking might be just beginning to establish itself and therefore have above-average growth potential.

Of course, you need to keep in mind that emerging market investments are generally appropriate for patient investors with longterm time horizons. Emerging market stock prices can take dramatic swings, and it is essential that you have the time to ride them out.

Ongoing Opportunity

Developed markets typically have higher average incomes than emerging markets, well-established financial institutions and markets and modern infrastructures. Of course, they may still offer investors the potential for continued growth.

By the same token, like emerging markets, developed foreign markets may be subject to greater risks than domestic investments. Foreign markets may be less efficient, less liquid and more volatile than those in the United States. They are also subject to the effects of foreign currency fluctuations and differing regulations.

If you decide to build an international element into your investment portfolio, mutual funds may be the best tool. Professional portfolio managers often have access to information that’s not widely available, not to mention the time and experience required to track events in a variety of markets. Before expanding your portfolio beyond U.S. borders, contact a qualified financial professional who can help you prepare for this investment journey.

If you’d like to learn more, please contact Jan Paul C. Ferrer

Equity Securities’ prices may fluctuate in response to specific situations for each company, industry, market conditions, and general economic environment.

Investing in the securities of such companies and countries involves certain consideration not usually associated with investing in developed countries, including political and economic situations and instability, adverse diplomatic developments, price volatility, lack of liquidity and fluctuations in the currency exchange.

Investments in foreign securities involve risks associated with interest-rate and currency-exchange-rate changes as well as by market, economic, and political conditions of the countries where investments are made. There may be greater returns but also greater risks than with U.S. investments. International stocks fluctuate in value and may be worth more or less than original cost.

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund before investing. To obtain a prospectus, contact your Financial Advisor or visit the fund company’s website. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing.

Article by Wealth Management Systems, Inc. and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC (“Morgan Stanley”). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned. Morgan Stanley Financial Advisor(s) engaged Via Times to feature this article.

[Jan Paul Ferrer may only transact business in states where he is registered or excluded or exempted from registration [http://www.morganstanleyfa.com /ferrer. Transacting business, follow- up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Jan Paul Ferrer is not registered or excluded or exempt from registration.

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