There are good historical reasons why emerging markets will make an investor rich. However it’s not always clear how to get into these markets. There are many ways open to the small investor who looks hard enough. Here, we show you how to tap into the investment potential in emerging markets.

Investing in emerging markets is one of the great investing movements of today. And it’s easy to see why.

All industrialised countries were emerging markets once. Every single large wealthy economy in the world was once a predominantly agricultural economy that went through a very similar process of urbanisation and industrialisation. And a lot of fortunes were made in these once emerging markets.

Emerging markets can be a shortcut to wealth. In non-emerging markets new techniques have to be invented slowly. With telecommunications for example it took fifty years to build the telephone network and then twenty years for the mobile phone network. In emerging markets, these increases in living standards and productivity can simply be copied.

So when Europe took two hundred years to develop industries, the emerging market of Japan took thirty and later emerging markets such as China took little more than ten years. The ability to copy the machinery and techniques of more developed countries mean that emerging markets can achieve astounding and sustained rates of economic growth.

However there are plenty of emerging markets that have had the status of emerging markets for years. Emerging markets are more likely to adopt ruinous social systems. Many emerging markets were once frontiers of capitalism – Russia and Brazil in the nineteenth century and China and Argentina in the early twentieth. However the United States was also one of the emerging markets.

Inadequate investor protection is a problem in many emerging markets, particularly with small foreign investors. This varies enormously among emerging markets with some emerging markets being less corrupt than some first world countries, while others are mired in corruption and fraud.

Emerging markets differ. For example China is among the more closed emerging markets but has seen a phenomenal rate of growth. The emerging markets in Africa have great potential but constantly disappoint. India has historically been one of the worst emerging markets but has recently shown encouraging growth and openness. Latin America has always been one of the more developed emerging markets, but marred by populist governments. Russia shows great promise as one of the most resource rich of the emerging markets, but regards foreign investors in the same way cats look at mice. There are other emerging markets from Eastern Europe to South East Asia.

There are also a number of ways to invest in emerging markets. It is possible to buy shares or real estate directly in many emerging markets, although there can be quite strict ownership rules for foreigners and more to the point there can be lax protection for small foreign investors.

Another, often overlooked way, of investing in emerging markets is to buy shares in a London quoted company that either operates in emerging markets or sells to businesses and consumers in emerging markets. This combines the transparency, liquidity and investor protection of a London listing with the growth potential of emerging markets. Another alternative is to buy a Unit Trust or Investment Trust that buys companies with exposure to emerging markets. This has the advantage for an investor of having a more general exposure to emerging markets than a company would have, and so leaving the investor less exposed to the management performance of the company or the exposure to any particular sector.