While investing in developing countries can be a risky proposition, two Atlanta foreign investment experts assert that for individuals and companies with the requisite capital and expertise, these areas provide opportunities for long-term growth.
Junko Horvath, executive vice president of MV Financial Group Inc., said that U.S. investors should be willing to take advantage of sustained international expansion.
“For the long term, we should invest more internationally, especially in emerging markets,” she told GlobalAtlanta. “As an investor you want your portfolio to reflect the evolution of global growth and wealth creation.”
At the same time, however, she hedged her comments, saying that the search for higher returns had to be balanced by an acute awareness of the risks involved.
Investors need to examine their tolerance for risk before committing their resources, she added, and they should not expect a quick return.
“You should have emerging markets as one of your asset classes,” she said. “But be prepared for higher levels of short-term price volatility that you may experience with other asset classes, and focus on a long-term view in line with your own specific financial objectives.”
Ms. Horvath also said that the term “emerging market” itself is not static but dynamic. “You have the large global growth engines – China, India and Brazil – that are very distinct economic stories.”
Then there are the economies, she said, that are in a sense already emerged – for example Chile, Malaysia and Israel, where risk-return profiles tend to be more similar to developed than to other emerging markets.
“At the other end of the spectrum you have new countries in play – think Ghana or Kazakhstan for example – that are the “frontier” markets. And this landscape is continually in flux.”
Ms. Horvath, who heads the Atlanta office of Bethesda, Md.-based MV Financial Group, has about two-thirds of her business consulting clients in the Georgia capital. The others are spread out in the U.S. and some are as far away as China, Japan, the Philippines and South Africa.
While she focuses on managing diversified investment portfolios for her individual and institutional clients, working with clients in developing markets can also involve educating them on wealth management tools like retirement and estate planning.
As more people attain middle-class lifestyles in these countries, their financial needs become more sophisticated than was the case for earlier generations.
Ms. Horvath has personal experience with economic ups and downs not only through international investments but in observing her native Japan.
After earning a master’s degree in business administration at the Georgia Institute of Technology in 1990, she found it was easy to get a job at Fuji Bank Ltd., one of 13 Japanese financial institutions then operating in Atlanta.
Following years of declines in Tokyo’s Nikkei stock market index and bad U.S. real estate investments, Ms. Horvath said the Bank of Tokyo-Mitsubishi UFJ Ltd. is the only surviving Japanese bank in the Georgia capital.
Despite these negative results in the financial sector, Japanese companies in a variety of industries maintain an active presence in the state.
Conrad Ciccotello, associate professor at Georgia State University’s J. Mack Robinson College of Business, agreed that both individual investors and U.S. companies with available capital should not be deterred from international investment by moments of slow growth.
“Yes there are risks, but over the long run companies in all these emerging markets can expect higher returns than in the U.S.,” he told GlobalAtlanta.
Dr. Ciccotello added that many executives and shareholders focus on quarter-to-quarter growth rather than establishing a lasting presence in an emerging country, leading them to scale back international investment after a quarter of poor performance.
“One reason I like companies with a portfolio across different countries is you can make an argument for long-term results,” he said. “When you’ve made investments in developing countries’ economies, it’s much more reasonable to say, ‘There’s growth here, but this is a long-term proposition, we’re not managing the company for quarterly results.’”
Another factor deterring foreign investment in many emerging countries is a legacy of violence or government hostility to business.
“One of the risks in developing markets is political instability,” Dr. Ciccotello said. “This could result in extreme tax or even expropriation.”
He asserted that the ways in which developing countries’ governments relate to foreign investors has undergone a significant shift in the last two decades.
“The legal environment to protect investors, both personal and corporate, has improved significantly in a number of developing economies,” Dr. Ciccotello said. “It’s in their interest to try and maintain a stable business environment in their legal treatment. I see that as a major advancement.”
Dr. Ciccotello may be reached by calling (404) 413-7462 or by email at firstname.lastname@example.org