Emerging markets are economies that show some of the traits of developed economies but aren’t quite at the same level yet.
There are three categories of economies: developed or advanced, emerging and frontier. An emerging market economy is considered to be progressing towards becoming advanced, with regulatory bodies, a market exchange, and some liquidity in its debt and equity markets. However, it doesn’t have the same level of regulation, oversight or market efficiency that an advanced market has.
Emerging markets often have higher growth rates than advanced economies, and investors therefore sometimes invest in them to try and take advantage of this. There are many indices that try to track and measure emerging markets. However, not all index providers agree with the International Monetary Fund (IMF) on which countries are emerging markets. The ones they do agree on include Brazil, Chile, China, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Russia, South Africa, Thailand and Turkey. Four of these – Brazil, Russia, Indian and China – have become known as the BRIC countries. Despite sometimes having strong growth rates, emerging market assets can also be more volatile than assets in advanced countries. That’s because of the higher economic and political risk often associated with emerging market countries.