Portfolio Investment and Risks
Because their markets are in transition and hence not stable, emerging markets offer an opportunity to investors who are looking to add some risk to their portfolios. The possibility for some economies to fall back into a not-completely-resolved civil war or a revolution sparking a change in government could result in a return to nationalization, expropriation and the collapse of the capital market. Because the risk of an EME investment is higher than an investment in a developed market, panic, speculation and knee-jerk reactions are also more common - the 1997 Asian crisis, during which international portfolio flows into these countries actually began to reverse themselves, is a good example of how EMEs can be high-risk investment opportunities. (For more insight on getting into emerging economies, read Forging Frontier Markets.)
However, the bigger the risk, the bigger the reward, so emerging market investments have become a standard practice among investors aiming to diversify while adding risk. (For more details on the advantages and disadvantages of making foreign investments, see Is Offshore Investing For You? and Going International.)