Emerging markets are not all created equal
For most investors, targeting foreign countries where there are high expectations for growth is a useful strategy. Although emerging markets are similar in that they have high expectations for growth, it is important to remember that these countries have unique and different sets of risks. Accordingly, investment services company Charles Schwab provides a simple breakdown chart showing the types of risks faced by emerging market economies. For example, Turkey has currency risks but is resilient to commodity prices. In addition, Turkish markets are not sensitive to what happens in developed markets.
Elsewhere, Mexico and Chile have considerably different risks according to the chart. Aside from currency risks, which they both share, Chile is particularly prone to sensitivity in the world’s commodity markets. That makes sense because Chile is the world’s largest supplier of copper – and almost half of the country’s exports are copper-related, including refined copper (22.6%), copper ore (20.9%), raw copper (3.6%), and copper wire (0.5%).
Mexico’s economy is noted for being particularly sensitive to what happens in developed markets such as the United States. This is because 81% of Mexican exports go to the US, while the next biggest buyer of Mexican goods is Canada, which takes 3% of exports. If the buying power of the US and to a lesser extent Canada is affected, it could have big consequences on what will be bought from Mexico.