Risk in Emerging Markets

Following up on the previous post about the great potential of emerging market funds, the following Investopedia excerpt has great advice on how to invest safely and smartly in emerging market funds in foriegn countires, beginning with the potential econimic and political risks associated with doing so:


Economic risk: This risk refers to a country's ability to pay back its debts. A country with stable finances and a stronger economy should provide more reliable investments than a country with weaker finances or an unsound economy.
Political risk: This risk refers to the political decisions made within a country that might result in an unanticipated loss to investors. While economic risk is often referred to as a country's ability to pay back its debts, political risk is sometimes referred to as the willingness of a country to pay debts or maintain a hospitable climate for outside investment. Even if a country's economy is strong, if the political climate is unfriendly (or becomes unfriendly) to outside investors, the country may not be a good candidate for investment.
Once these have been assessed, it's important to take the following points into consideration before investing in an emerging market fund:

Invest in a broad international portfolio
Invest in a more limited portfolio focused on either emerging markets or developed markets
Invest in a specific region, such as Europe or Latin America
Invest only in a specific country(s)

If invested in carefully and correctly, emerging markets often deliver quite lucrative returns.