Ann C. Logue, MBA Author of Hedge Funds For Dummies and Day Trading For Dummies Learn to: • Understand emerging markets and their place in our economy • Incorporate these growth areas into y our business and inve stment plans • Add foreign stocks to diversify yo ur p ortfolio Emerging Markets Making Everything Easier! ™ Open the book and find: • What emerging markets offer • How to weigh challenges, risks, and opportunities for return • The potential payoffs in emerging markets • Worldwide opportunities from Botswana to Vietnam (and every- where in between) • The influence of political systems in emerging markets • How to protect yourself from corruption • Legal pitfalls to avoid Ann C. Logue, MBA, is a finance writer who has written for Barron’s, MSN Money, Newsweek Japan, and Wealth Manager. A lecturer at the Liautaud Graduate School of Business at the University of Illinois at Chicago, she is the author of Hedge Funds For Dummies and Day Trading For Dummies. $24.99 US / $29.99 CN / £17.99 UK ISBN 978-0-470-87893-4 Business & Economics/General Go to Dummies.com ® for videos, step-by-step examples, how-to articles, or to shop! Branch out into emerging markets and diversify your portfolio In this global economy, it’s important to understand the power that other countries possess and how they can affect the global market and your investment portfolio. Emerging Markets For Dummies gives you the information you need to understand emerging market nations and their place in our local and global economies. • Emerging markets 101 — get the 4-1-1 on the basics of emerging- market investing and the essentials on risk, return, and investment potential • Go global — discover the geography of the world’s emerging markets (big and small), from the practically mature to the relative babies • Find the growth — look for changes in demographics, market regulation, and technology in emerging markets to generate higher investment returns than you may be able to find at home • Check the climate — find out the key issues surrounding politics, trade, and natural resources that create both risk and opportunity in emerging markets • Start investing — make smart portfolio decisions with priceless information on how to buy and sell, where to look, and what to watch out for as you dip into emerging-market investments Emerging Markets Logue Spine: .72" Spine: .72" Start with FREE Cheat Sheets Cheat Sheets include • Checklists • Charts • Common Instructions • And Other Good Stuff! 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Get More and Do More at Dummies.com ® To access the Cheat Sheet created specifically for this book, go to www.dummies.com/cheatsheet/emergingmarkets Mobile Apps There’s a Dummies App for This and That With more than 200 million books in print and over 1,600 unique titles, Dummies is a global leader in how-to information. Now you can get the same great Dummies information in an App. With topics such as Wine, Spanish, Digital Photography, Certification, and more, you’ll have instant access to the topics you need to know in a format you can trust. To get information on all our Dummies apps, visit the following: www.Dummies.com/go/mobile from your computer. www.Dummies.com/go/iphone/apps from your phone. Emerging Markets FOR DUMmIES ‰ 01_9780470878934-ffirs.indd i01_9780470878934-ffirs.indd i 11/30/10 11:23 AM11/30/10 11:23 AM 01_9780470878934-ffirs.indd ii01_9780470878934-ffirs.indd ii 11/30/10 11:23 AM11/30/10 11:23 AM by Ann C. Logue, MBA Emerging Markets FOR DUMmIES ‰ 01_9780470878934-ffirs.indd iii01_9780470878934-ffirs.indd iii 11/30/10 11:23 AM11/30/10 11:23 AM Emerging Markets For Dummies ® Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2011 by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600. 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Library of Congress Control Number: 2010941217 ISBN: 978-0-470-87893-4 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 01_9780470878934-ffirs.indd iv01_9780470878934-ffirs.indd iv 11/30/10 11:23 AM11/30/10 11:23 AM About the Author Ann C. Logue, MBA is the author of Hedge Funds For Dummies, Day Trading For Dummies, and Socially Responsible Investing For Dummies. She has written for Barron’s, MSN Money, Newsweek Japan, and Wealth Manager. She is a lecturer at the Liautaud Graduate School of Business at the University of Illinois at Chicago. Her current career follows 12 years of experience as an investment analyst. She has a BA from Northwestern University and an MBA from the University of Chicago, and she holds the Chartered Financial Analyst designation. 01_9780470878934-ffirs.indd v01_9780470878934-ffirs.indd v 11/30/10 11:23 AM11/30/10 11:23 AM 01_9780470878934-ffirs.indd vi01_9780470878934-ffirs.indd vi 11/30/10 11:23 AM11/30/10 11:23 AM Dedication To Rik and Andrew, who like to travel to emerging markets. Author’s Acknowledgments I’m grateful to the many people who gave me ideas, shared information, or helped me with the research for this book, including Paul Davis Bowden of HSBC, Marc Chandler of Brown Brothers Harriman, Aakash Chudasama, Dan Harris of Harris & Moure, Dimitri Kryukov of Verno Investment Management, Ross Moore and Mario Rivera of Colliers International, Rodrigo Puello, Peg Reed of Interbank FX, Carrie Schloss, Tariq Shaikh, Dennis Shin, Farrah Siganporia, Daniel Suddes, Rees Warne, Todd Warren, Peter Woike, and Nigel Yin. Thank you, everyone, for your help. I had visions of a whirlwind tour of 50 nations to research this book, but the deadlines kept me at home. Instead, the world came to me through the Richard J. Daley Global Cities Forum at the University of Illinois at Chicago and through conferences organized by the University of Chicago Booth School of Business’s African Business Group and South Asia Business Group. As for the mechanics of putting together the book, editors Stacy Kennedy, Elizabeth Rea, and Todd Lothery of John Wiley & Sons were great to work with. Finally, my agent, Marilyn Allen, made it all happen again. 01_9780470878934-ffirs.indd vii01_9780470878934-ffirs.indd vii 11/30/10 11:23 AM11/30/10 11:23 AM Publisher’s Acknowledgments We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Media Development Project Editor: Elizabeth Rea Acquisitions Editor: Stacy Kennedy Copy Editor: Todd Lothery Assistant Editor: David Lutton Technical Editor: Lawrence S. Speidell, CFA Editorial Manager: Michelle Hacker Editorial Assistant: Jennette ElNaggar Cover Photos: © iStockphoto.com/ktsimage Cartoons: Rich Tennant (www.the5thwave.com) Composition Services Project Coordinator: Patrick Redmond Layout and Graphics: Vida Noffsinger Proofreader: Bonnie Mikkelson Indexer: BIM Indexing & Proofreading Services Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies Ensley Eikenburg, Associate Publisher, Travel Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services Debbie Stailey, Director of Composition Services 01_9780470878934-ffirs.indd viii01_9780470878934-ffirs.indd viii 11/30/10 11:23 AM11/30/10 11:23 AM [...]... Considerations for Emerging- Market Investors 16 Political and social risk 16 Corruption 17 Currency risk 17 Liquidity risk 18 xii Emerging Markets For Dummies Chapter 2: Targeting the Unique Investment Potential of Emerging Markets 19 Examining Markets from an Investment Perspective 20 Developed markets 20 Emerging markets. .. 4 Emerging Markets For Dummies Part I: The Basics of EmergingMarket Investing The first part describes what emerging markets are and covers some of the technical issues that you should know about risk, return, and investment potential It also includes information on accounting and corporate governance, which are key to making good investment decisions but which may be very different in emerging markets. .. The Basics of Emerging- Market Investing 7 Chapter 1: An Overview of Emerging- Market Investing 9 Chapter 2: Targeting the Unique Investment Potential of Emerging Markets 19 Chapter 3: Weighing Challenges, Risks, and Opportunities for Return in Emerging Markets 33 Chapter 4: Understanding Accounting and Corporate Governance Abroad 45 Par t II: The Geography of Emerging Markets: Regions... Part IV: Getting in the Game: Ways to Invest in Emerging Markets 215 Chapter 14: Picking Bonds and Stocks in Emerging Markets 217 Looking at Bonds and Stocks in Emerging Markets 217 Boning up on risk and return 218 Using leverage and margin 218 Comparing bonds and stocks in both emerging and developed markets 219 Pursuing Emerging- Market Bonds 221 Sorting out... Basics of Emerging- Market Investing 4 Part II: The Geography of Emerging Markets: Regions and Regimes 4 Part III: For Better or for Worse: Factors Affecting Emerging- Market Investments 4 Part IV: Getting in the Game: Ways to Invest in Emerging Markets 4 Part V: The Part of Tens 5 Icons Used in This Book 5 Where to Go from Here 5 Part I: The Basics of Emerging- Market... terms This part of the book looks at different types of emerging markets in different parts of the world and how they may fit into your portfolio Part III: For Better or for Worse: Factors Affecting Emerging- Market Investments Not only is the socio-political climate in emerging markets different from the situation in developed countries, but emerging markets are also different from one another This part... the idea of emerging markets to help describe the investment opportunity for investors willing to look to the long term This chapter starts your tour of the markets and the key issues facing them You don’t need a passport, only a desire to discover more about the economic opportunities in the world today 10 Part I: The Basics of Emerging- Market Investing Defining Emerging Markets Emerging markets are... political change for the better Another class of country, frontier markets, includes those nations that are very small, are at an early stage of economic development, or have tiny stock markets These markets present opportunities for patient investors with an appetite for risk The poorest of the world’s nations are considered to be pre -emerging; these markets have few opportunities for investors now,... and opportunity for investors in emerging markets Part IV: Getting in the Game: Ways to Invest in Emerging Markets This part is all about the different asset classes that you can invest in Some help you meet specific investment goals; others represent important ways to get exposure in some markets You can find information about how to buy and sell, where to look, and what to watch out for, whether you’re... finances, turn to Chapter 3 If you want to find some 5 6 Emerging Markets For Dummies specific information on different markets, check out Chapters 5, 6, and 7 If you need to figure out what issues you want to emphasize when you invest, look at Chapters 8 through 13 Those chapters will get you started If you’re already on board with the idea of emerging markets, know where you want to invest, and now want . investment portfolio. Emerging Markets For Dummies gives you the information you need to understand emerging market nations and their place in our local and global economies. • Emerging markets 101. by Ann C. Logue, MBA Emerging Markets FOR DUMmIES ‰ 01_9780470878934-ffirs.indd iii01_9780470878934-ffirs.indd iii 11/30/10 11:23 AM11/30/10 11:23 AM Emerging Markets For Dummies ® Published. Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies. com, Making Everything Easier,