This surge in the market capitalization of emerging countries' stock
markets also reflects a sense by investors that those areas represent
better investment opportunities compared to Western or industrialized
nations. Expectations on currency and interest rate moves also have a
large effect. Westerners have begun to realize the unexplored
potential that has arisen in South America, Asia and other parts of
the world. As investors tend to move away from home bias in light of
the immense growth opportunities around the world, an internationally
balanced portfolio is emerging as a new means of diversification.
Although some countries made huge moves up in terms of their market
caps, their absolute percentage relative to larger nations such as the
U.S. remains relatively small. The United States retained its lead
as the largest stock market in the world by market capitalization
slipping to 29.70%, despite the market rally.
Japan makes up 7.97% of the world total, but it has dropped over the
past five years from its high of 10.34%. Although Japan remains a
fairly safe investment option, other Asian markets have been able to
attract some of this lost market share. The same can be said for
America.
The Brazilian stock market increased its global share and now makes
up 2.84% of the current global market capitalization.
China also saw a large move during 2010 by surpassing Japan as the
world's second largest economy. The Chinese equity market now makes up
6.89% of the world total. In fact, China now has the third-largest
stock market after the U.S. and Japan, and is challenging Japan for
second place. India was another strong contender, and saw its share
move up to 3.22%.
*Emerging Market ETFs*
Investors who want to play the emerging markets trend in 2011 can
invest in various exchange-traded funds (ETF) that reflect the main
indexes of various foreign stock markets.
The *iShares MSCI Emerging Markets Index* (NYSE:EEM) tracks emerging
stock markets in general and can be used to invest in a broad range of
countries with large weightings toward Brazil and China, particularly
in financial sectors.
The *iShares FTSE/Xinhua China 25 Index* (NYSE:FXI) invests most if
its assets in the 25 largest company stocks in China.
The *iShares MSCI Brazil Index* (NYSE:EWZ) invests in large cap
Brazilian stocks. Having an overweight position in Petrobras and
Petroleo Brasilerio, EWZ has a primary focus on energy and industrial
materials sectors.
Investors who want to stick with, or at least hold a portion
of stocks listed on U.S. markets can buy into the *S&P 500*
(NYSE:SPY).
Changes in market capitalization seem to reflect the higher and
resilient growth of emerging economies, and there are many ETFs around
to invest in that trend. Investors should understand, however, that
many factors influence this shift besides economic growth. (For a
more comprehensive analysis of international investing, check out
_Does International Investing Really Offer Diversification?_,
_Investing In China_ and _Evaluating Country Risk For International
Investing_.)
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Source: Investopedia.Com
