Emerging markets: an intriguing niche trading market
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:
- Low per-capita income;
- Rapid growth;
- Volatility;
- 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.
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at r1investing. With it, you can explore global markets without limits.
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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
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we have got you covered.
The information above is for education purposes only and cannot be
considered as investment advice.