Investment motives in emerging markets : a Maltese investment's perspective

Abstract

With the ever increasing attention given to Emerging Markets (EMs) primarily due to their outstanding growth attributed to International Portfolio Investment (IPI), the present dissertation aims to explore the motivations, uncertainties and future plans of the Maltese investment firms which plough capital into these economies. There is no question as to whether the 2011 European debt crisis have impacted the investment strategies made by Maltese firms. The interviews have revealed that the crisis did not favour investing in EMs but highlighted that a healthy 'mix' always helps to reduce potential volatility in ones portfolio. Astonishingly enough, the participants are further looking forward to see what EMs are likely to offer them in terms of profits rather then what developed countries are. Indeed, Maltese investors allocate no less than 39 percent of their capital into these economies, with China and Turkey dominating their portfolios. Furthermore, the research showed that the principal reasons for investing in EMs are to achieve diversification benefits and to gain from higher returns. EMs are perfectly uncorrelated with developed markets, and therefore portfolio diversification will serve in attaining higher returns whilst taking on managed risks. Realistically, EMs entail significant challenges and therefore the researcher proposes that the investors should not adopt a stand-alone EM index approach, but rather consider xii investing in both the developed and emerging world. This will ultimately allow them to benefit from countries graduating from the emerging to the developed status. In realising these results, one-on-one interviews with professional investors were convened. The semi-structured interview was split into four sections. Sections 1 and 2 are about the company and participant. The third section consisted of four close-ended statements, whereby the researcher analysed them quantitatively by using a 'Likert Scale', with options ranging from 'Strongly Agree' on one end to 'Strongly Disagree' on the other with 'Agree', 'Neutral' and 'Disagree' in between. The final section consisted of two open-ended questions which were analysed using a thematic approach. To the best of the researcher's knowledge, this is the first study to deal with outward IPI of Maltese investment firms in emerging economies and thus, this makes the present dissertation important for literature as well as for knowledge. Existing and prospective entrants into EMs can potentially benefit from this study especially since it revealed new insights to the characteristics of the Maltese strategic thinking.