Siam Commercial Bank: Investment Strategy for Emerging Markets vs. Developed Markets

Investors looking for investment opportunities may hesitate between investing in emerging markets or developed markets. Because both markets are interesting and above all, the expected return may differ.

The emerging market is an economy that is divided by the use of national income conditions. The ability to read and write and the average level of education of people in the country, including industrial and agricultural products, and if you look at investment, emerging markets have high volatility in stock indices and stock prices which rise and fall daily. Examples of countries in this group are China, India, Russia, Taiwan, Thailand, etc.

Investing in emerging markets attracts many investors who want to generate long-term return on investment by taking advantage of being an emerging economy. This makes the group of countries attractive economic growth rates. In the past, the economy of emerging countries It is mainly based on income from the manufacturing and agricultural sectors. But today, it is home to innovative companies and countries that drive the global economy. Make investors around the world choose to invest and grow with this market (Source: PriceWaterhouseCoopers: PwC)

The developed market is an economy of large size, stability, liquidity and a level of market regulation. Examples of countries in this group are USA, UK, France, Hong Kong, Japan, Singapore, etc.

Let’s see the differences and conditions between emerging markets and developed markets before making an investment decision, you should study the basic information as follows

1. The country’s credit rating (Sovereign Credit Rating) is the ability to pay debts and repay principal on time in each country. This is often evaluated by economic and political factors. Developed countries tend to receive a AAA credit rating, while most emerging countries receive a BBB or BB credit rating, while some countries have a credit rating below investment grade, mainly due to political factors banking system, etc.

2. Volatility: Developed countries tend to fluctuate exchange rates, the key interest rate. The stock market is relatively weak, have a solid economic base. This makes investors think that if investing will reduce risk, but note that economic growth tends to have a relatively lower growth rate than in emerging countries.

3. Development of money market and capital market and implementation of government policies: These two issues are where investors should focus as it directly affects investments such as implementation of interest rate policy. inflation level. It is often the criterion that investors use in their decision to invest, whether it is a market in a developed country or an emerging country.

Investment strategy

In addition to the relatively high return on investment and in particular the confidence of investors in the economic fundamentals of emerging countries. Consequently, investments in emerging countries also present a high level of risk. You should therefore choose to invest in stocks with strong fundamentals, capable of growing in step with the global economic recovery, capable of being competitive in the sector itself, or of operating a business which considers sustainability and attaches the importance of ESG in investing, etc. Or if you are interested in investing in debt securities, you should focus on investing in government bonds of countries with good economic fundamentals, having the ability to drive the economy to grow continuously.

For investment strategies in developed countries, large-cap stocks should be emphasized as they are insulated from the global economic downturn and political concerns, including companies that benefit from global trends such as technology , medicine and health, etc. bonds and bonds whose credit rating is acceptable for investment (investment grade).

The rapidly changing global situation thus becomes a challenge for investors who wish to invest in developed or emerging markets. Therefore, the most important thing is to carefully study the information to create the best return opportunity.

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