In recent years, investors have become increasingly interested in the emerging markets as they seek to tap into the success of the world's fastest-growing economies.
According to World Bank figures, Russia's gross domestic product grew by 484 per cent between 2002 and 2012; GDP in China increased by 466 per cent over the same period, compared with a 53 per cent increase in the UK.
But towards the end of last year, growth in China showed signs of slowing down for the first time in 14 years and the recent political turmoil in parts of the former Soviet Union has raised concerns about the wisdom of investing there.
Richard Hyder, head of charity investment at Turcan Connell, says that emerging markets have also been affected by the US Federal Reserve's decision to scale back its post-credit crunch lending support. With less cheap cash from the reserve at their disposal, US banks and investors have started to withdraw funds they had invested in emerging markets. Hyder says: "Now that this source of investment is fast disappearing, we are seeing currencies and stock markets declining, a combination that is particularly unpleasant for those investors who had invested in emerging markets. We believe this downward trend across the region might have further to run, so it is not yet time to go back in."
According to world market data, charities invest 5 per cent of their funds in emerging markets on average; this figure is 41 per cent in the UK. Roger Curtis, head of charities at Aberdeen Asset Management, says that despite the current uncertainty there are good opportunities for growth. "Over the medium term the growth potential for developing economies is going to be much greater than in established western economies," he says.
And even investment managers who are worried about the political and economic difficulties in countries such as Ukraine and Russia say that charities cannot afford to ignore emerging markets completely.
So what are the best and safest ways to invest in their regions? Tamsin Evans, a director at the financial consultancy P-Solve, says: "I think it depends on a charity's governance structure - how much time do trustees have and how much experience do they have?"
She says that an active management approach, whereby an investment team actively buys, holds and sells assets with the aim of beating market indices, tends to be more successful in emerging markets than passive management - but it comes at a cost. Passive management is where a portfolio mirrors a market index such as the FTSE Emerging index. There are various ways to invest in these markets, including through equities, debt and currencies, or through dedicated funds and pooled investments such as unit trusts.
James Bevan, chief investment officer at CCLA, a specialist fund manager for charities, says one option is for charities to invest directly in companies that are based in emerging market countries, but that have broad appeal in developed countries. These include the South Korea-based electronics company Samsung, the Taiwanese electronics company Hon Hai Precision Industry, and the Taiwan Semiconductor Manufacturing Company.
But investing directly in emerging market companies can be a risky option, particularly in countries such as Russia where corporate governance rules are less established. An alternative option for trustees would be to invest in western luxury goods companies such as the fashion brands Prada and Luis Vuitton, and the car-maker BMW, which have good sales growth potential in the emerging economies.
Robin Keyte, a director at Keyte Chartered Financial Planners, says: "It might be more difficult to explain to charity trustees because it's indirect, but the attraction is that you don't have the doubling of the charges because you're only investing in individual shares."
William Reid, investment director at the financial advisers Quilter Cheviot Investment Management, says that for many charities investing in unit trusts and investment trusts is a more practical way to reach emerging markets given the relatively small proportion of funds they are likely to have at their disposal. He suggests looking at funds such as the Henderson Far East Income fund and JP Morgan's Global Emerging Markets income trust. And for those looking for potential income growth outside these markets he suggests considering the sustainable energy fund Bluefield Solar or the aircraft leasing fund Doric Nimrod Air.
Kevin Frisby, a partner in the investment practice at the financial consultancy LCP, says that charities have until now been fairly reticent about investing in emerging markets, but they should be encouraged to consider opportunities there provided they invest selectively and across a reasonable timeframe. "I suggest that they should be a little bit bolder in future because valuations of emerging markets now relative to developed markets are more attractive," he says.
From BRIC to MIKT: What is an emerging market?
Emerging markets is a catch-all term used to describe developing countries that are fast on their way to becoming developed countries. Emerging markets generally have lower levels of GDP and liquidity than developed western economies. Other factors that can characterise emerging markets are lower levels of corporate governance and the absence of a developed stock exchange.
A broad range of countries are covered by the term, which is why some financiers have grouped nations depending on their levels of GDP. The four largest emerging economies are the BRIC countries: Brazil, Russia, India and China. The next four largest markets are the MIKT countries: Mexico, Indonesia, South Korea and Turkey, although South Korea is no longer considered an emerging market by some.