Loading the player...

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.

RELATED TERMS
  1. Emerging Market Fund

    An emerging market fund is a fund that invests the majority of ...
  2. MSCI Emerging Markets Index

    An index created by Morgan Stanley Capital International (MSCI) ...
  3. Emerging Market ETF

    An exchange-traded fund that focuses on the stocks of emerging ...
  4. Emerging Markets Bond Index - EMBI

    The emerging markets bond index is a benchmark index for measuring ...
  5. Emergency Credit

    Emergency credit is a loan given by a federal reserve bank to ...
  6. MSCI Inc

    MSCI Inc is an investment research firm that provides indices, ...
Related Articles
  1. Investing

    Time to Add Emerging Markets to Your Portfolio?

    Now that emerging markets are out of favor, is it time to add them to your portfolio?
  2. Investing

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing

    The Better Bet: Emerging Market Debt Or Equity?

    Want the returns of emerging markets with less of the volatility and risk? Have a close look at corporate and sovereign debt instead of equities.
  4. Investing

    Invest In Emerging Market Bonds With These ETFs

    With the variety of emerging market bond ETFs now on the books, it's become far easier for investors to diversify. Here's a look at a few options.
  5. Investing

    ETF Flows: Emerging Market Equity ETFs Shedding Assets (EEM, VWO)

    Discover five exchange-traded funds that invest in emerging market equities and experienced large year-to-date capital outflows as of March 4, 2016.
  6. Investing

    Top 3 Emerging Markets ETFs (VWO, EEM)

    Discover some of the most popular and best performing exchange traded funds that investors utilize to obtain easy exposure to emerging markets.
  7. Insights

    Turkish Lira at Biggest Daily Drop in 8 Years Following Attempted Coup

    A failed military coup against Erdogan's regime caused a mass Lira selloff. Here is a list of some ETFs with exposure to Turkey or the Turkish Lira.
  8. Insights

    Forging Frontier Markets

    Pioneering is never easy, but it has its exciting - and worthwhile - moments for investors.
  9. Investing

    An Evaluation Of Emerging Markets

    Get the full story on this asset class before you write it off as too risky.
RELATED FAQS
  1. Is Mexico an emerging market economy?

    Learn the difference between a developed economy and an emerging market economy, and understand why Mexico is an emerging ... Read Answer >>
  2. Safe and Liquid Options to Invest Your Emergency Fund

    Learn where are the best options for safe investments of your emergency funds. Read Answer >>
  3. Which developed country has the most debt?

    Discover the nations that have the largest net government debt, viewed in terms of absolute dollar amount or as a percentage ... Read Answer >>
Hot Definitions
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  4. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  5. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  6. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
Trading Center