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Attitude of UK investors towards Emerging Markets

Research’s Contribution & Problem Occurrence

Study of Attitude of UK investors towards Emerging Markets

ABSTRACT

Today, emerging markets have turned out to be the driver of worldwide growth. As per the estimates of International Monetary Fund (IMF), emerging markets are anticipated to grow 200 to 300 percent faster as compared to the developed economies. Still, the emerging markets are under weighted by the public investors in their portfolios
Emerging market asset’s importance has grown significantly for the developed country investors. Conservatively, for emerging markets, the term less-developed countries are much popularly used. Emerging market has been defined by different scholars differently. But, this term Emerging Market, first came into existence when Antoine W. A., the former deputy director of capital markets department at the World Bank’s International Finance Corporation, addressed the developing world as the emerging markets for investment opportunities
Total financial assets in emerging markets have been just 7% i.e. in money term stood at about $41 trillion in 2000, whereas the same, in 2010, has been recorded to be 21% of the global total. According to McKinsey Global Institute’s repost (2011), a projected growth of 30 to 36% till 2020 is expected in the emerging market financial assets as a percent of the global total or in money terms it is expected to be $114 to $141 trillion. Although, this estimated high growth implies a positive attitude of investors towards the emerging market investment along with a healthy perception but still investment in emerging markets are subjected to some problems under consideration.

Here, the main aim of study is to comprehend perception as well as attitude of the UK investors, which they have towards the emerging market investment opportunities. In the course of realizing the defined aim, some of the specific objectives will be attained. Specific instruments required for the study to gather the information and attain the aim of the research, research design and approaches are very important (Gibaldi, 2010). There are two basic sources of data collection i.e. the primary survey and the secondary data mining (Mcshane, 2011). Here, both the primary data collection methods as well as the secondary methods for data collection are to be used.
UK investors have a mixed attitude towards emerging market investment risk parameter. A clear attitude towards risk factor among UK investors regarding the emerging market investment opportunities cannot be identified.
UK investors opine that in emerging markets, Economic progress is happening with an accelerated pace. Argentina, Chile, Colombia, Czech Republic, Hungary, Egypt, Indonesia, Jordan, Israel, Malaysia, Morocco, Peru, Philippines, Poland, Russia, Mexico, South Africa, Venezuela etc are the most valued emerging markets from the stand point of UK investors.

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1 INTRODUCTION

Investment means parking funds into some profitable ventures with an expectation to reap desired profits for a longer time period. Almost all types of investments involve risk, like the investment in equities, fixed interest securities, property etc., which are subjected to inflation risk. Nowadays, a new trend of coping with the risk associated with investments has emerged in the form of investment in emerging markets. Basically, emerging markets or better the emerging economies are the countries where a rapid growth is pertaining in terms of the social or business activity and industrialization. For example, the economies of India or China are regarded to be one among these. In the first quarter of 2011, emerging market hedge fund capital has reached a new level of $121 billion. According to the IMF survey, the 7 largest emerging and developing economies in terms of the nominal GDP are Brazil, China, Mexico, Indonesia, Russia, Turkey and India.

Today, emerging markets have turned out to be the driver of worldwide growth. As per the estimates of International Monetary Fund (IMF), emerging markets are anticipated to grow 200 to 300 percent faster as compared to the developed economies. Still, the emerging markets are under weighted by the public investors in their portfolios.

Financial disclosures of some companies belonging to developed nation like US, UK etc., profitability of their businesses have augmented significantly in the past decade backed by considerable profits made by their overseas market operations. By investment in overseas markets, companies can expand their portfolios and diversify the risks over the poorly correlated assets. Now considering the individual investment, job, home and every other belonging of any individual is subjected with the country he/she lives in, so by investing in emerging markets or overseas markets, individuals can hedge against the single economy risk.
Many scholars have worked over this subject till now to assess the attitudes and perceptions of investors towards the emerging markets. Here, in the present dissertation, discussion will concentrate on the UK investors and their perception and attitude towards the emerging market investment opportunities.

1.1. Background of the subject

Extremely lucrative investment opportunities are offered by the emerging markets to the corporate as well as individual investors. In past decades, such markets have witnessed substantial growth that have resulted in inclusion of such investments in the portfolios of majority of investors with an expectation of high returns as well as diversification benefits. Divecha et al (1992) has defined emerging market’s characteristics. These markets’ investment instruments include publically traded securities. Such markets are not developed ones and termed to be the emerging markets according to the definitions of IMF. Higher investment potentials for global institutional investors exist in these and much reliable source of data exist.
Emerging market asset’s importance has grown significantly for the developed country investors. Conservatively, for emerging markets, the term less-developed countries are much popularly used. Emerging market has been defined by different scholars differently. But, this term Emerging Market, first came into existence when Antoine W. A., the former deputy director of capital markets department at the World Bank’s International Finance Corporation, addressed the developing world as the emerging markets for investment opportunities (Knowledge@Wharton, 2008). Also, in support of the investment in the emerging markets, Agtamael (2007) has uttered that the Western Investors must invest funds in the third-world Equities as to diversify the risk. In line to this, a portfolio has been designed by him, which has really performed well.

Till the last decade, investment preferences of the developed nations’ investor for the emerging markets have given a new shape to the global capital markets’ development pace. As far as the growth of the financial assets of emerging market is concerned, an average rate of 16.6% per year has been recorded over the last decade. This rate is nearly 4 times the current rate of growth in the mature economies. Total financial assets in emerging markets have been just 7% i.e. in money term stood at about $41 trillion in 2000, whereas the same, in 2010, has been recorded to be 21% of the global total. According to McKinsey Global Institute’s repost (2011), a projected growth of 30 to 36% till 2020 is expected in the emerging market financial assets as a percent of the global total or in money terms it is expected to be $114 to $141 trillion. Although, this estimated high growth implies a positive attitude of investors towards the emerging market investment along with a healthy perception but still investment in emerging markets are subjected to some problems under consideration.

Political as well as economic instability are the two key concerns of investors while making a decision about investment in emerging market. Also, emerging market investments involve an elevated risk element. This risk may be in the form of exchange rate instability, political volatility, economic catastrophe, debt crisis etc. All this have an adverse affect on the investors’ perceptions and attitudes for investment. The present study aids in identifying the pertaining attitudes of particularly UK investors about the emerging market investment opportunities.

1.2. Contribution of the research

Subject of the current research is of significant importance both from academic perspective as well as from the business and economics trend analysis perspective. Factors responsible for formulation of investor perception and attitude will be mapped by this so as to assist the investment firms in customer approach method. Also, the results derived will aid in assessing the market’s confidence in the emerging market investment products. Key genesis of the study is to assess the shifting of investor’s perceptions and attitudes about investing in the emerging markets. Results of the study can be used by the emerging market economies as a base for formulating policies and regulations to attract foreign investments. In particular, the study will supply ground for the future researchers in the same field. Also, national as well as international stock exchanges could use the results in order to formulate and regulate investor’s fund going out or coming in a particular economy. Moreover, this study will provide a ground for the scholars for future research.

1.3. Problem under study

“It is not the answer which enlightens, but the question”
- Ionesco cited in Haynes, 2006
Well said! In a research, the aim is to derive answer for the problem under study. The main problem under study here is:
“What kind of perception and attitude has been retained by the UK Investors' about the investment opportunities in emerging markets?”
This problem statement supplies a base for the aim. Here, the main aim of study is to comprehend perception as well as attitude of the UK investors, which they have towards the emerging market investment opportunities. In the course of realizing the defined aim, some of the specific objectives will be attained. It is always good to divide the whole some aim into some well defined objectives as this step makes a clear accountability of the results with the purpose of study.

  • To map the mind set of UK investors’ about the emerging market investment
  • To estimate the potential of the emerging market investment for future growth and returns
  • To summarize the key characteristics of the UK investor attitude
  • To identify factors responsible for drafting of the perception of the UK investors regarding the emerging market investment opportunities

1.4. Research Design and Methods

There are so many different research instruments and tools available for a research analysis but only some of these can be appropriate to apply in the course of a particular work. Thus for following a predefined and well structured path for research, it is always better to define the key terms in advance. Specific instruments required for the study to gather the information and attain the aim of the research, research design and approaches are very important (Gibaldi, 2010). There are two basic sources of data collection i.e. the primary survey and the secondary data mining (Mcshane, 2011). Here, both the primary data collection methods as well as the secondary methods for data collection are to be used.
Under the primary data collection, data required for evaluating the problem under study is collected for the first time by the researcher directly through observation, survey or interviews. These collected data can be of either qualitative or quantitative nature. On the basis of the nature of data collected, data analysis tools are used for further extraction of information suitable for the problem under study (Gibaldi, 2010).

On contrary to the primary data, secondary data are collected from the already published data sources i.e. government institutions’ reports, company reports, survey reports of other scholars etc. (Ethridge, 2004). Results from the secondary data are subjected to the quality of the source information.
Both data collection methods are going to be used in the present work. For primary data collection, UK investors’ group will be assessed through questionnaire method. The collected data from various sources will be analyzed by using qualitative research tools (Gill, and Johnson, 2002). Also, some of the quantitative methods will be employed for evaluating the data collected through questionnaires and frame the investor attitude towards the emerging market investments.

Among the popular 3 types of research designs, for the present study, exploratory research design is going to be used. In this, a feel of the situation has to be identified. Emphasis is given to a discovery of ideas along with the possible insights for identifying areas for further study. Current perception and attitude of UK investor for emerging market investment opportunity is attempted to be explored in the present study. In the exploratory studies, any conclusive result is not generated but the structured questionnaires methods are used for generalizing the findings by the judgemental and intuitive inference drawn from the collected data (Goddard and Melville, 2004). Here, an inductive approach is proposed to be used as the issue of the research is very specific and there is no need to develop any hypothesis. The issue under study is linked with number of factors and does not require any theory. Thus the inductive approach of research will be much justified rather than the deductive (Kimmel, 2007).
For survey, a sample has to be selected. A non-probability sample is to be selected ifor the current study (Bynner and Stribley, 2010). Primary data will be collected through a well structured questionnaire addressed to the UK investment expert group of 20 respondents. The collected data will be analyzed with the help of high end software so that the technical errors can be avoided. On the basis of the analysis, results will be generated (Jackson, 2008).

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1.5. Structure of the dissertation

For the purpose of having a well defined and flawless presentation, this entire dissertation writing is segregated into seven successive chapters. These are namely:

  1. Introduction,
  2. Literature Review,
  3. Research Methodology,
  4. Data analysis,
  5. Conclusion
  6. Recommendations
  7. Reflective statement

The first chapter is the introductory chapter that deals with the explanation of the basic ground of the study. A general introduction of the subject of study, a brief background, key problem of the study, research aims, objectives and the research methods etc. are described in brief here.
In the second chapter, an extensive picture of the existing literature will be given. This will include details about the formerly conducted studies in the same or somewhat relevant subject. Key theories related to the Investor perception, investment decision, etc and other scholar’s work in the emerging economy will be described in detail. This chapter will concluded by giving a ground to the current research.
The third chapter is of research methodology. In this chapter, different research tools and methods for deriving the objectives of the study are defined. This will entail the complete process starting from data collection to the final data analysis and interpretation. Methods of sampling, determination of sample size, tools for data analysis etc. are also given here.
Forth chapter is for data analysis. Here, both primary and secondary data collected are processed for refinement and extraction of the required results. At the initial stage, primary data, which is to be collected by interviews and survey, will be discussed and analyzed. This analysis will be done using charts and tables. In the second part, secondary data will be assessed with the help of appropriate tools.
In the fifth chapter, a detailed conclusion will be written on the basis of findings derived in the previous chapter after data analysis. By a thorough discussion, interpretations about the entire populations will be generated.
At last, the entire study will end in the recommendation and reflective statement chapters. In the recommendation chapter, after attaining the research objectives, suggestions and recommendations for the UK investors will be given. Also, ground to the further research opportunities will be provided. Further the reflective statement describes the experiences and learning all through the course of study.

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REFERENCE

  • Ahn, J. and Cogman, D., 2007. A quiet revolution in China’s capital markets. McKinsey on Finance, Number 24, 2007.
  • Bace, E., 2010. For and Against Emerging Markets. [Online] Available through: http://www.ft.com/cms/s/f769f698-ff0b-11df-956b-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ff769f698-ff0b-11df-956b-00144feab49a.html&_i_referer=#axzz2M5Uq4WR5> [Accessed on 27th Feb 2013].
  • Baker, S., 2013. Sentiment split over emerging markets. [Online] Available through: http://www.efinancialnews.com/story/2013-02-21/sentiment-split-over-emerging-markets> [Accessed on 26th Feb, 2013].
  • Baker, T., 1988. Doing Social Research, McGraw-Hill.
  • Bolgar, C., 2012. Investors, While Shunning Risk, Seek Opportunities in Emerging Markets. [Online] Available through: <http://Online.wsj.com/ad/article/assetmanagement-behavior> [Accessed on 26th Feb 2013].
  • Broadman, H., n.d. Navigating the risks and opportunities in emerging markets. [Online] Available through: <http://www.pwc.com/us/en/view/issue-15/navigating-risks-opportunities-emerging-markets.jhtml> [Accessed on 27th Feb 2013].
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