Iraq Is One of The World’s Quickest Emerging Markets
When it comes to investing, nothing is riskier than putting all your eggs into one basket. If those eggs happen to be in the wrong basket, you may lose everything. Instead, it’s best to diversify and reduce risk by including emerging market currency investments in your portfolio, such as the Iraqi Dinar.
Although many American investors believe they can reduce market risks of spreading investments across a mix of U.S. stocks, bonds and real estate, the reality is far different. In fact, diversifying while keeping investments focused in U.S. markets mean having all the eggs in one weak basket, which is a recipe for disaster.
Let’s explore how investors can reduce risks by taking advantage of currency investments available in emerging markets. In particular, we’ll examine how the Dinar offers investors a golden opportunity for gains in Iraq’s booming economy backed by massive oil reserves.
What’s so special about emerging markets?
Emerging markets are young, developing economies in various parts of the world. Emerging markets are known for their rapid growth and industrialization, which means the potential returns on investments in emerging markets are expected to be far greater than those obtainable in mature markets like the U.S. and Europe.
Investopedia defines an emerging market as an “economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body.” The Financial Times says an emerging market is a “developing country, in which investment would be expected to achieve higher returns but be accompanied by greater risk.”
Emerging markets are characterized by rapid growth and development with attendant prospects of high returns. In addition, newly-industrialized countries and those that may become more industrialized in the future are also considered emerging market economies.
Emerging markets represent about 80% of the global population while representing only about 20% of the global spending power. So, these markets offer huge upside potential while allowing investors to reduce their risk exposure to U.S.-based assets.
Why it’s important to invest outside the U.S. ?
There are many reasons why it’s important to avoid investing strictly in U.S.-based assets. First, U.S. stocks are currently overvalued. Right now, stocks are intrinsically more expensive than they have been at any time during the past 130 years.
This overvaluation in stocks is driven by a blind belief that the bull market of previous years will extend further. Yet, stocks in the S&P 500 are already at unjustifiably-high Price to Earnings ratios.
The P/E ratio helps determine whether stocks are undervalued, reasonably priced or overvalued. It’s calculated by dividing the stock’s market value or share price by its earnings per share. The P/E ratio is usually considered in relation to historic averages.
The P/E ratios of stocks in the S&P 500 show serious overvaluation – The index had a average P/E ratio of 18.68 as of October 31, 2014. This is higher than both the 5-year average (13.3) and the 10-year average (13.8). Frankly, today’s lofty stock prices make a strong case that stocks are overvalued.
The stock market’s overvaluation may be the cause of the recent market selloff that led to a sharp 9.3% decline soon after the S&P 500 had reached an all-time high of 2019.26. The bearish fundamentals are still present, so any more shocks to the marketplace may cause U.S. stocks to collapse.
It would be wise to hedge U.S. equity investments before things turn ugly. The Iraqi Dinar is a good way to diversify and reduce U.S. investment risks.
The attraction of emerging markets such as Iraq
The chief attraction of emerging markets is the opportunities they offer for investment portfolio diversification. And, the demographics of emerging economies consist of large, young populations who can drive economic growth with technology, entrepreneurship and the adoption of ideas from more-developed marketplaces.
As they grow, emerging markets evolve from “producer economies” focused on producing raw materials for exports to become “consumer economies” with disposable income available to purchase consumer goods such as electronics, fashion clothing, and automobiles. That’s good news for Dinar investors, since it means increased local demand for the currency as consumers spend more.
Iraq is an excellent example of a highly-attractive emerging market: As the country exports ever-larger quantities of oil, the economy grows rapidly and the Dinar inevitably benefits from the country’s growth.
How to find the best emerging markets?
As mentioned earlier, the emerging markets worthy of attention are countries that show are an accelerating rate of industrialization. Some well-known emerging markets are the BRIC countries as designated by Goldman Sachs in 2011, namely Brazil, Russia, India and China.
Another group of emerging market countries are the CIVETS as designated by HSBC. The CIVETS countries are Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
Yet, investment opportunities in the BRIC and CIVETS countries have already been widely exploited. Simply the fact that “BRIC” is a well-known acronym suggests that many investors have already crowded into that market niche, thus reducing the potential gains for latecomers.
For independent investors, the better approach is to seek out less-known emerging markets where potentially-higher returns on investment (ROI) can be achieved.
In simple terms, the key to identifying potentially-profitable emerging markets poised for growth in the short and long terms is to find countries which possess great natural wealth, and where political and economic reforms are taking place at the same that rapid industrialization is also occurring.
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