Over the long term the volatility tends to even out - another reason to stay in emerging markets for the long haul. Besides, some emerging markets have been considerably less volatile, and therefore less risky, than Nasdaq over the last two or three years. If investors can tolerate Nasdaq's fluctuations, they can certainly cope with emerging markets. In 200 many of these markets have retreated from the massive gains they made last year. Disclosure and transparency remain a problem in many developing countries.
Reform still has a long way to go.
But it has been improving quite rapidly since the 1998 Asian crisis when investors realized that much of their information about companies and economies had been pretty bad. Western investors now insist on higher standards, and they've become more sophisticated in the way they research investments. Developing countries understand that they need to improve transparency to attract more outside investment. The outlook for the next three years is good. Investors have done well in the US and are now beginning to migrate to emerging markets in search of high returns.