What is Geographical Diversification?

It is also important to consider diversification in a more geographical sense. Events that affect one region as a whole may have the opposite effect - or no effect at all - on another region. And more broadly, companies in different regions have different risk/growth profiles according to their respective economic development and the development of their capital markets.

When building your portfolio, you should not only be mindful of the different risks and potential growth opportunities corresponding to each country or region, but also how different market events will impact each region. For this, you'll need a deeper understanding of countries or regions in terms of geopolitics, resources, international trade, etc.

Countries can be grouped and thought about in many ways, but one way to think about them is in terms of economic development. By these standards, countries are also split up into the following categories: Developed Markets, Emerging Markets, and Fringe Markets. 

Countries in developed markets have highly developed economies and capital markets. These countries have to meet standards isn terms of economic development, security size and liquidity, and market accessibility. Some examples of developed markets are the US, France, Japan, Hong Kong, and Singapore.Emerging Markets. 

Countries in emerging markets are slightly less developed in terms of their economies and capital markets, and are still in the process of development. Investing in these companies usually tends to be a bit riskier, but also has greater potential for faster growth. Some examples of emerging markets are Brazil, Mexico, China, India, and Korea. 

Countries considered 'Fringe Markets' have less developed economies than emerging market economies. They tend to be riskier investments but similarly have potential for much larger and faster growth and returns. Some examples of fringe markets include Argentina, Croatia, Vietnam, and Kenya.

It is important to diversify your exposure to all of these regions (or the regions whose risk/reward profile matches your own). You can find more information here: https://www.msci.com/market-classification

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What is Industry Diversification?

What is Industry Exposure?