Like an investor, what factors would you regard as before investing in the emerging stock market of a developing country?
In emerging market stocks an investor needs to be concerned with the depth of the market and the market's liquidity. Depth of the market refers to the chances to invest in the country. One measure of the depth of the market is the concentration ratio of country's stock market. Often the concentration ratio is computed to demonstrate the market value of the ten largest stocks traded as a fraction of the total market capitalization of all equities traded. The lower the concentration ratio, the less deep is the market. That is, most of the value is concentrated in only a few companies. Whilst this does not necessarily imply that the largest stocks in the emerging market are not good investments, however, it does, recommend that there are few opportunities for investment in that country & that proper diversification within the country may be hard. In terms of liquidity, an investor would be wise to inspect the market turnover ratio of the country's stock market. High market turnover recommend that the market is liquid, or that there are opportunities for purchasing or selling the stock rapidly at close to the current market price. It is important because liquidity means you can get in or out of a stock position quickly without spending more than you intended on purchase or receiving less than you expected on sale.