Emerging markets: an intriguing niche trading market

Emerging Markets | An Intriguing Niche Trading Market

Written by:
Omer Aragón Godínez

Looking to invest in emerging markets and wondering whether or not investing in emerging markets is worth the try? Then you are in the right place. This article will cover everything you need to know about it – from the benefits of investing in such markets, and the risks involved in the countries that make up these markets.
 
If you are ready to learn then let’s shoot. 

What Is Emerging Markets? 

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 countries 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 bring 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.
 
One well-known US investment firm includes the next developing countries in the 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 an emerging industry 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 to 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: 
  1. Low per-capita income;
  2. Rapid growth;
  3. Volatility;
  4. High ROI. 
Another essential characteristic of this emerging industry is switching from agricultural and resource extraction activities to manufacturing and industrialization. To speed up economic growth, the governments of developing countries make focus on deliberate industrial and trade strategies.
 
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, were less than 3 percent. At the same time, growth in the economies of Egypt, Poland, and Morocco was greater than 4 percent. For emerging market in China, Turkey and India, their economies grew in the neighborhood 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. 

Why Are Emerging Economies Important? 

The significance is in the title “emerging.” These markets are likely to grow bigger in the future and may impact the global economy in a positive manner. China, for examples, was tagged an emerging economy some years ago; today, China is the third-largest economy in the world moving close to the United States and the EU. In the world, China is also the biggest exporter. As its influence continues to grow year-in-year-out, the label of an emerging market seems to gradually disappear. 
 
So, in essence, emerging industry will help to catapult the global economy to an enviable height. Development and robust growth can lead emerging countries to overtake the big economies of the world. A good example is when India overtook the United Kingdom in terms of GDP.  As at the end of 2016, the issue of Brexit negatively affected business investment in the UK which made the country’s GDP to slip behind India. 

Emerging Economies And The International Monetary Fund 

The International Monetary Fund was established to stabilize the global economy. It has long been monitoring emerging markets. The latest country to seek the IMF's bailout is Pakistan – although other developing countries have also requested the IMF's assistant in time past. 
 
In a recent IMF report, it noted that emerging countries will survive market volatility, but that they would experience a massive draining of capital out of the country. The report delineated some developing countries at risk for contractions, including Argentina.  

Why Invest In Emerging Economies? 

Emerging markets are a good place to invest because they tend to grow faster than advanced economies. If you take a look at the post 2007/8 financial crisis, you will observe that there has been economic stagnation in America and Europe. Investors in these regions have had to deal with low-interest rates; thus, prompting them to look elsewhere.
 
Developing countries, in contrast, can offer excitement because they are bound to grow. As developing countries become more industrialized, they tend to spend more on infrastructure, which leads to rapid growth and expansion in capital and liquidity.
 
Industrialization also leads to growth in the labor force, especially in the manufacturing sector, where there is a huge demand for export. For instance, China transformed from an agricultural-based economy to a manufacturing economy as we all know it today. Emerging Industry offers golden opportunities for investors who have the resources to invest.       

What Are The Risks Of Investing In Emerging Industry? 

There are so many risks involved when you consider emerging industry investment. The first and major risk has to do with political instability. While emerging economies sit on humongous wealth arising from oil and other natural resources, the potential of these countries is not fully realized because of inconsistency in government policies and programs.
 
Aside from instability in government, emerging markets have a lot of issues to deal with. From religious intolerance, ethnic diversity to lack of infrastructure, all of these can make it difficult for you to conduct any business.
 
In addition, some emerging economies (for example, Brazil) rely heavily on exportation to generate revenue. So of them even battle with the problem of civil unrest, coups, frequent strikes, and natural disasters – these factors can be a major risk for you to recoup from your investment. However, as an investor, if you have a taste for risk, emerging industry are highly promising and can fetch you profit more than what you would have realized in advanced economies. 

Develop Your Trading Strategies 

Investors prefer to catch the financial opportunities emerging markets offer. Taking into account all the aspects mentioned above, traders can develop their strategies in the most optimized way.
 
To trade in a regulated environment with advanced tools, open an account at r1investing. With it, you can explore global markets without limits. Not only can you include emerging economies into your strategies, but you can also trade CFDs on various financial assets, including commodities, stocks, indices, currency pairs, etc. This one of the leading European brokers, you can access global markets instantly while: 
  • Choosing among 250+ financial assets;
  • Taking advantage from tight spreads;
  • Enjoying fast start and instant withdrawals;
  • Mastering a popular trading platform MT4;
  • Enhancing your skills with educational materials;
  • Staying tuned with newsletters and financial news;
r1investing is one of the  leading and a CySEC-regulated online broker that is committed to giving both newbies and experienced investors the required legwork to invest in emerging markets. Client inspiration and satisfaction are our top priorities.
 
We parade a team of experienced professionals who understands the dynamics of emerging industry to bring you the experience you truly deserve.
 
r1investing brings up many opportunities to strengthen the financial portfolio and power up trading techniques. If you are planning to explore the world of trading, join us! 

Frequently Asked Questions 

Which countries are emerging markets? 

While there is no universally adopted yardstick to label a country as an emerging industry, different lists have generally been adopted to establish the countries that make up emerging industry. According to the Morgan Stanley Capital International Emerging Market Index (MSCIEMI), 24 developing economies quality as emerging markets, including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. The MSCIEMI report follows the individual country’s market caps on their stock markets. 
 
Also, the IMF has a list of 23 countries that is very similar to that of MSCI, though there are some discrepancies. Despite the discrepancies, each of these institutions has the right to change their list, either removing or adding an emerging economy.   

What is the meaning of emerging markets? 

An emerging market is a term used to describe the economy of a developing country that is fast becoming more engaged with global markets. In other words, emerging industry are the countries that possess some characteristics of a fully developed market but do not have enough to be considered developed. 

Why emerging markets are important? 

An emerging market will generally help the global market to grow. Development and robust growth are the two significant factors that can aid an emerging country to quick transit to a developed economy or advanced economy. 

Are emerging industry a good investment? 

Emerging markets offer a unique investment opportunity, and the reason is not far-fetched. They offer equal reward and risks to investors.  You need to understand the risk involved, but also to know that there are gains waiting to be explored if you identify the right emerging market for your investment.

What is the difference between emerging countries and developing countries? 

The major difference between these two is that the former is growing more rapidly to become a force to reckon with in the skim of things globally, while the latter is struggling and need help from trade partners.

How much should you invest in emerging markets? 

When talking about emerging market investment, it is critical to carry out investment portfolio risk analysis. To be on a safe side considering the risk involved in emerging market investment, we suggest you to evaluate how much you are willing to risk. 

Final Thoughts 

There you go! Emerging markets are projected to help shape the global market in a positive manner. If you have a high taste for risk, investing in an emerging market is highly promising.
 
If you’ve made up your mind to invest in an emerging market, you can look at r1investing platform to get started. We have a dependable customer support team, a lot of educational materials, high levels of security and much more to offer.
 
On our platform, you can trade on various financial assets, including commodities, stocks, indices, currency pairs, etc. If you are interested in CFD trading we have got you covered.
 
The information above is for education purposes only and cannot be considered as investment advice.
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Written by:
Omer Aragón Godínez

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