RISK FACTORS TO CONSIDER BEFORE INVESTING IN DEVELOPING MARKETS

Developing markets are extremely attractive to investors, not just because it allows them to diversify their portfolio but also because it allows them a chance to gain unique returns. But investing in developing markets comes with its own share of market risks which can be slightly more unpredictable. It is, therefore, important for investors to understand these associated market risks that they must try to mitigate.

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POLITICAL RISKA risk resultant of a change in government or government policies, political risk is a broad term that also

includes in its gamut events like trade agreements, labor laws, terrorism, war, coups, and elections.

LIQUIDITY RISK In developing markets, where there are few buyers and sellers, exiting an investment and converting to

currency may be difficult. Called liquidity risk, investors may have to continuously decrease selling price to find a buyer in such a scenario.

FOREIGN EXCHANGE RISKExchange rate volatility and unstable currencies make investment in developing markets a risky affair. This

risk due to exchange rates movement which can negatively impact investors is foreign exchange risk.

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