Decipher Risk in Emerging Markets

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Emerging markets can be a physician-investor'sgold mine or money pit, andover the past few years, that roller coasterhas not stopped investors from throwingbillions of dollars into countries likePakistan and Peru. According to a recentarticle in , the iShares MSCI MergingMarkets Index exchange-traded fund,which tracks stocks from countries likeTaiwan, South Africa, Turkey, and Poland, isup 89% over the past 2 years—a drasticdifference from the S&P 500's 18% gain.And drops that occurred incountries like India (29%)and Egypt (37%)have not seemedto dull investors' interest. saysthat when it comesto emerging markets,as economiesof certain countries(eg, China, India, etc)take off, other countriesrich in natural resources,like Brazil andChile, get pulled alongwhen commodity prices peak.

While that assumption can be a lucrativeventure, financial planners recommendallocating as much as 5% of yourportfolio to emerging markets, but generallyno more because of unpredictable risk.