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Published byCamilla Morris Modified over 8 years ago
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Emerging Markets
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How to invest ETFs Mutual Funds Index Funds
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ETFs and Mutual Funds
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Sector Breakdown
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Index Funds Similar to an ETF or mutual fund but tracks an entire index Check leverage ratios SQQQ
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Emerging Market Indicators
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GDP and Inflation Connection critical in determining growth When does inflation occur? Inflation rate compared to GDP growth rate Can find real and nominal rates online
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GDP GDP growth found to be uncorrelated to real returns
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GDP Continued
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Surprises in GDP
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Trade Balance Difference between a country’s imports and exports Recessions trigger increase in export Growth triggers increase in imports
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Current Account Exports less inputs Net income from abroad Net current transfers Current account surplus increases net foreign assets by amount of surplus
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Trailing P/E Ratio Why is it important? Based on actual earnings Most accurate
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Common Fallacy Economic indicators do not tell the whole story GDP growth does not equate to positive earnings growth
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Debt to Export Ratio Shows debt needed to fuel exports High D/E ratio means more financing needed to fuel exports Lower D/E is desired
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Emerging Markets Risk Foreign Exchange Rate Non – Normal Distribution Insider Trading Regulations Liquidity Capital Raising Governance Bankruptcy Political Risk
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Foreign Exchange Risk Investments produce returns in origin country’s currency Investors must convert to realize gains in USD Currency fluctuations can impact total returns of security
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Non – Normal Distribution Returns of developed markets follow normal distribution Emerging markets do not follow this distribution Cannot use historical data
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Insider Trading Regulations Lax insider trading laws Introduce market inefficiencies Prices will deviate from intrinsic value Highly Speculative
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Corruption Index Country’s with lower corruption figures likely have stricter regulations on insider trading Lower rates of corruption mean lower risk for emerging market portfolio
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Liquidity Less liquid than developing markets Higher broker fees Slower transactions Share Turnover = Total shares traded / Average # of Shares Outstanding
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Raising Capital Improper access to financing Increased WACC Lower WACC lower NPV Less profit generating projects
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Global IR 2012
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Governance Weak corporate governance Government often involved Restrictions on corporate takeovers
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Bankruptcy Increased chance of bankruptcy Freedom to cook books Higher interest rates on corp. debt Heavier financial burden
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Corporate Bankruptcy Filings
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Political Adverse political decisions War Tax Increase Loss of subsidy Change of market policy Inability to control inflation Laws regarding resource extraction
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HDI Difficult to quantify political risk but perhaps can use figures such as HDI
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China Analysis Shanghai Composite Index closes out Q1 as worst preforming global measure – down 15% March rebound has helped
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Leverage
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Volatility and Price Swings
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New Investors
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P/E Ratios
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Would you invest in China?
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