Foreign markets are often referred to as emerging markets if anything, but the European market is included. Foreign stock markets have been offering larger returns than the U.S. stock market for most of this decade, partly because they start out at a lower base. Investors exposed to foreign market growth potential of the emerging countries, can hop on the high-return gravy train, so long as they avoid the ride off the cliff that has happened frequently with emerging market stocks.
Foreign Markets Include BRIC and Feeder Countries
Some of the foreign emerging market countries include Brazil Russia, India, China, Vietnam, Taiwan, Israel, and even New Zealand and Australia can be included. Part of the attraction of several of these countries is that their overall market value is significantly lower than the US market value. Trading a five dollar stock can offer larger percentage returns based on a given capital investment than a $50 stock because of the nature of larger numbers versus smaller numbers.
Smaller numbers can increase more rapidly on a percentage basis than larger numbers with a given level of investment. This fact alone allows emerging markets to offer larger percentage returns. For example, the entire US stock market is valued over $21 trillion, where China's entire stock market is valued at approximately $1.6 trillion. For a $21 trillion market to double in value to $42 trillion is a significantly more difficult feat than a $1.6 trillion market doubling to $3.2 trillion.
Foreign Emerging Markets with Manufacturing and Agricultural Power
Meanwhile the emerging countries all have significant agricultural production as well as growing manufacturing production. (Source: sice.oas.org) The level of absolute production is not as critical as the growth rate of the production of various industries, both agricultural and manufacturing, because stock markets in a foreign market or an emerging market are a future predicting device.
Foreign emerging markets offer significant profit potential in the stock arena because their populations are growing, often at a rate double or triple of the developed Western world, with the exception of Russia. Also because they are manufacturing and growing agriculturally. Brazil, for example, has become one of the leading producers of cotton, corn, and soy even displacing the U.S. in some markets.
One of the challenges of investing in emerging markets or foreign markets is that these markets have significantly higher market volatility or risk. One method mitigating this risk is to employ 15% stop loss, in all market investments. With this stop loss used for foreign market investing the tremendous profit potential can be enjoyed while limiting the eventual crashes that afflict foreign emerging markets frequently. Additionally, currency losses used to be a common problem with foreign market investing. Because the dollar has been sliding against most currencies, the value of the foreign currency has added to the returns on foreign market investing. Foreign market investing can continue to provide high-returns as long as the dollar is in a general down trend.
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