Emerging markets: an intriguing niche

Emerging markets are the countries that possess some characteristics of a fully developed market but do not have enough to be considered developed. In this group are countries that were once thought to be developed but changes to the market have the economy riskier or less stable, and of course, some of these markets will one day likely reach fully developed market status. ‘Frontier market’ is a related term that denotes a market that is smaller or riskier than an emerging one.

Countries with Developing Economies

The two largest emerging markets today are China and India, which find themselves in a group called BRIC, an acronym for the four largest developing economies, Brazil, Russia, India and China. As a duo, China and India serve as a base to some 40 percent of the world’s population and labour force, and together their output at over $32.5 trillion is much greater than that of the United States or the European Union.

Other large groups of developing markets that include the four BRIC countifies are BRICET, which is BRIC with the addition of Eastern Europe and Turkey, BRICM, which is BRIC plus Mexico, BRICS, with the addition of South Africa.

Other emerging economies lumped together are MINT, which is Mexico, Indonesia, Nigeria and Turkey; CIVETS, which groups together Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa; and Next Eleven, which is these emerging markets lumped together: Bangladesh, the Philippines, Egypt, Indonesia, Nigeria, South Korea, Pakistan, Turkey, Mexico, Iran, and Vietnam.

Perhaps a more encompassing look at these markets would be the 10 Big Emerging Markets, known as BEM. In alphabetical order they are: Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey. Of course, everyone brokerage has their own breakdown and list of emerging markets.

One well-known US investment firm includes all these as emerging markets in their Emerging Market Index: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Qatar, Peru, Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey, and United Arab Emirates.

These compare to the established advanced economies of the United States, Japan and western Europe.

Defining Emerging Markets

Over the years, there have been various definitions of an emerging economy, with scholars studying them. In the 1970s, there was the idea that ‘less developed countries’ could provide more profit potential than developed economies, with greater risk, of course. But soon that term led to emerging market, though economies do not necessarily ever ‘emerge’.

So, perhaps the best way to look at these markets is as a market economy that is developing. No one knows for sure which parameters t use in classifying developing markets, just like no one knows how developed a particular economy will reach or when, but for now, it is progressing towards advancement. And emerging economies are important to the global economy, driving growth.

There seem to be several characteristics that developing economies share. Low per-capita income, rapid growth, volatility, and finally, a high ROI. When looking at economic growth, we can see in 2017, the most developed countries, such as the United Kingdom, the United States, Germany and Japan, was less than 3 percent. At the same time, growth in the economies of Egypt, Poland, and Morocco was greater than 4 percent. For emerging markets China, Turkey and India, their economies grew in the neighbourhood of 7 percent.

Investing in emerging economies is not right or wrong. Some investors find these characteristics attractive and choose to invest in emerging markets. Of course, other investors choose more established economies to invest in, preferring economies that are already developed, with less chance for volatility.