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An emerging market economy is one that’s progressing into an advanced economy.

Common characteristics include a market exchange, a regulatory body, and liquidity in local debt and equity markets. They usually have established a financial infrastructure including banks, a stock exchange and a unified currency. And, naturally, they’re open to outside investors.

Emerging market economies comprise about 80 percent of the world’s population, including Brazil, India, Russia, China, Mexico and Turkey. Some claim that they define the world’s current state of economic growth.

Emerging market economies can be a risky investment, but they may offer great rewards and can also help diversify a portfolio.

Emerging market companies and economies can expand at a faster rate than those found in advanced nations. Their populations are eager to consume resources like an advanced economy.

But investing in an emerging market is not always beneficial. Political instability, domestic infrastructure problems, volatile currency and limited equity opportunities heighten investment risk, and these risks can be difficult to measure.

Investors who invest strictly in what they know should avoid emerging market economies.

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