The main three risks and challenges with emerging markets Political risk. Emerging markets may have unstable, even volatile, governments. Political unrest can cause serious consequences to the economy and investors.
- Economic risk. These markets may often suffer from insufficient labor and raw materials, high inflation or deflation, unregulated markets and unsound monetary policies. All of these factors can present challenges to investors.
- Currency risk. The value of emerging market currencies compared to the dollar can be extremely volatile. Any investment gains can be potentially lessened if a currency is devalued or drops significantly.