Though international markets, especially the emerging ones, are expected to grow, some experts warn of risks and expanding bubbles that could form in emerging market exchange traded funds (ETFs).
Manny Mashhoud, 46-year-old insurance executive, fears that high unemployment and lingering effects of the recession may still be felt in years to come in the U.S. markets, writes Walter Hamilton for The Chicago Tribune. Seeking other investment opportunities, Mashhoud found that “the advantages of the foreign markets substantially outweigh what we have here.”
Most financial advisors share Mashhoud’s sentiments, believing that many international economies will likely move out of the recession faster than the United States. Currently, emerging market stocks have surpassed the performance of key U.S. indexes.
Still, investing in emerging markets doesn’t come without risks. Recent events have revealed that steep losses can be triggered by events anywhere in the world. [How to spot and avoid ETF bubbles.]
Additionally, some experts warn that the popularity overseas investments could end badly. Critics warn that emerging markets suffer from shortcomings that could prove fatal, such as high volatility, shortage of information on companies that issue shares, currency fluctuations that could magnify stock-price moves on portfolios measured in another currency and past booms have been followed by harsh busts. [Are ETFs creating an emerging market bubble?]
The good news, though, is that you can protect yourself by having a strategy. We get in when a position has crossed its 200-day moving average, and we sell when it drops below the 200-day or 8% off the recent high. Having an “escape hatch” that you employ at the right time will put a limit on your losses, remove emotions and mitigate your overall risk. [How to follow trends.]
For more information on emerging markets, visit our emerging markets category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.