The tropical financial markets are a growing business, and that growth is creating demand for a diversified and well-capitalized portfolio.
But there are still risks, and in some cases, no one has quite figured out how to navigate them.
As the region grows and diversifies, there are also risks that a new generation of investors is not prepared to handle them.
And that is where a new group of researchers, from the University of Guelph and the University in the Caribbean, comes in.
As part of a research program to better understand the potential pitfalls of these new financial sectors, the research team led by Professor Stephen McConchie is looking at the potential risk of an emerging market asset class that is currently dominated by a handful of big players.
“The reason for that is that it is a high-risk investment that does not have a long-term track record, and it does not necessarily have a proven track record of returns,” says Professor McConchese.
The team has created a tool that allows investors to track and analyze how well the asset class is performing over time.
One of the things they are doing is looking for the trends in a number of indicators.
For instance, over time, the risk of inflation has increased over time and that is the main indicator they are looking at.
In the future, it is expected that inflation will be lower and therefore, inflation should be lower.
The second indicator they look at is the volatility of the stock market.
In other words, they look to see how the stock price is doing relative to the fundamentals.
For example, it would be good to see the growth rate of the underlying asset classes.
It is possible that the stock index could be a better proxy for fundamentals than the growth rates.
They also look at the performance of the equity market.
What is really fascinating about this is the fact that the diversification of the asset classes has actually led to a lot of different asset classes in the last few years.
“One of my favorite examples of this is that the sector of global equities has had two very distinct asset classes: the equities that have been built on the back of debt, and the equestrians that have built on debt,” explains McConcie.
As of right now, there is a lot more volatility in the asset portfolios than in the bond portfolios, but that volatility is being erased by the diversifying and increasing amount of risk.
The study is being conducted by researchers from the university and the Caribbean island nation of Guadeloupe, and they hope to publish their findings later this year.
And while the research does not provide a clear view on the overall risk profile of the region, there will be more research being done to look at different aspects of the tropical asset class.
For instance, the team is looking to develop a database that could help them better understand what factors are driving the volatility in asset prices.
“We are hoping that this will give us a better understanding of what is driving the market, and what is causing volatility in it,” McConce says.
But one of the key questions the team wants to answer is whether there are more people investing in the sector, and if so, how big a market is it?
The team is currently studying the risk profile for about 40 of the largest companies in the region.
The team has found that the top 20 largest companies are largely owned by the top one per cent of the population, so their portfolios are very well diversified.
In fact, they estimate that if you look at only the assets that are being held by the 20 biggest companies in terms of total market capitalization, they have a total market cap of $7.3 trillion.
But if you take a closer look at individual stocks and individual companies, they are even smaller in total market value.
They have a market cap that is $0.8 trillion, or about 0.01 per cent, which is less than 0.0001 per cent.
“So in the long term, this could be the beginning of a shift in the global economy away from the assets of the global financial sector to those of the emerging market economies,” Mcconce says, adding that that shift could be quite dramatic.
Although there is still a lot to learn about the emerging markets, McConces research team hopes to be able to provide better insight into the riskiness of these emerging markets in the coming years.
They hope to be in a position to answer some of the questions that we have had about the risk in these markets in future research.
This is an edited version of a story originally published on The Globe And Post.