Jo Akumba’s portfolio is invested in a range of developed markets fixed-income securities. She asks her adviser about the possibility of diversifying her investments to include emerging and frontier markets government and corporate fixed-income securities. Her adviser makes the following comment regarding risk:

“All emerging and frontier fixed-income securities pose economic, political, and legal risk.

Economic risks arise from the fact that emerging market countries have poor fiscal discipline, rely on foreign borrowing, have less diverse tax base, and significant dependence on specific industries. They are susceptible to capital flight. Their ability to pay is limited. In addition, weak property rights, weak enforcement of contract laws, and political instability pose hazards for emerging markets debt investors.”

Discuss the statement made.