Emerging Market Economy

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What is an 'Emerging Market Economy'

An emerging market economy is a nation's economy that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of market exchange and regulatory body. Emerging markets are not as advanced as developed countries but maintain economies and infrastructures that are more advanced than frontier market countries.

BREAKING DOWN 'Emerging Market Economy'

Emerging markets generally do not have the level of market efficiency and strict standards in accounting and securities regulation to be on par with advanced economies (such as the United States, Europe and Japan), but emerging markets do typically have a physical financial infrastructure, including banks, a stock exchange and a unified currency.

Investors seek out emerging markets for the prospect of high returns, as they often experience faster economic growth as measured by GDP. Investments in emerging markets come with much greater risk due to political instability, domestic infrastructure problems, currency volatility and limited equity opportunities, as many large companies may still be "state-run" or private. Also, local stock exchanges may not offer liquid markets for outside investors.

Current Emerging Market Economies

Not everyone agrees entirely on which countries are emerging markets. For example, the International Monetary Fund (IMF) classifies 23 countries as emerging markets, while Morgan Stanley Capital International (MSCI) also classifies 23 countries as emerging markets, but with some difference between the two lists. Standard and Poor's (S&P) and Russell each classify 21 countries as emerging markets, while Dow Jones classifies 22 countries as emerging markets. Below is a list of the common countries that each organization classifies as emerging markets as of 2016, as well as a list of ones that are unique to only some institutional listings.

A list of countries that all five institutions classify as emerging markets includes: Brazil, Chile, China, Colombia, Hungary, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Poland, Russia, South Africa, Thailand and Turkey.

The remaining countries on the IMF emerging market list are: Argentina, Bangladesh, Bulgaria, Pakistan, Romania, Ukraine and Venezuela.

The remaining counties on the MSCI list are: Bangladesh, Czech Republic, Egypt, Greece, Qatar, South Korea, Taiwan and the United Arab Emirates.

The S&P list has these remaining countries: Bangladesh, Czech Republic, Egypt, Greece and Taiwan.

The Dow Jones list also includes the following countries: Czech Republic, Egypt, Greece, Qatar, Taiwan and the United Arab Emirates.

The Russell list has these remaining countries: Czech Republic, Greece, South Korea, Taiwan and the United Arab Emirates.

At any of these institution's discretion, a country can be removed from the list by either upgrading to a developed nation or downgrading to a frontier nation. Likewise, developed nations may be downgraded to an emerging market, as was the case with Greece, or frontier markets may upgrade to an emerging market, as was the case for Qatar and Argentina.

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