Emerging markets

An emerging market is a country that has some characteristics of a developed market, but does not meet standards to be a developed market.^[1] This includes countries that may become developed markets in the future or were in the past.^[2] The term "frontier market" is used for developing countries with slower economies than "emerging".^[3]^[4] The economies of China and India are considered to be the largest.^[5] According to The Economist, many people find the term outdated, but no new term has gained traction.^[6] Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion.^[7] The four largest emerging and developing economies by either nominal or PPP-adjusted GDP are the BRIC countries (Brazil, Russia, India and China). The next five largest markets are South Korea (though, considered a developed market), Mexico, Indonesia, Turkey, and Saudi Arabia. Iran is also considered an emerging market.^[8]

Terminology

Developing countries that are neither part of the least developed countries, nor of the newly industrialized countries

In the 1970s, "less developed countries" (LDCs) was the common term for markets that were less "developed" (by objective or subjective measures) than the developed countries such as the United States, Western Europe, and Japan. These markets were supposed to provide greater potential for profit, but also more risk from various factors like patent infringement. This term was thought by some to be politically incorrect so the emerging market label was created. The term is misleading in that there is no guarantee that a country will move from "less developed" to "more developed"; although that is the general trend in the world, countries can also move from "more developed" to "less developed".

Originally brought into fashion in the 1980s by then World Bank economist Antoine Van Agtmael,^[9] the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include many countries in Africa, most countries in Eastern Europe, some countries of Latin America, some countries in the Middle East, Russia and some countries in Southeast Asia. Emphasizing the fluid nature of the category, political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets".^[10]

The research on emerging markets is diffused within management literature. While researchers including, George Haley, Vladimir Kvint, Hernando de Soto, Usha Haley, and several professors from Harvard Business School and Yale School of Management have described activity in countries such as India and China, how a market emerges is little understood.

In 2009, Dr. Kvint published this definition: "Emerging market country is a society transitioning from a dictatorship to a free-market-oriented-economy, with increasing economic freedom, gradual integration with the Global Marketplace and with other members of the GEM (Global Emerging Market), an expanding middle class, improving standards of living, social stability and tolerance, as well as an increase in cooperation with multilateral institutions"^[11] In 2008 Emerging Economy Report,^[12] the Center for Knowledge Societies defines Emerging Economies as those "regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization." It appears that emerging markets lie at the intersection of non-traditional user behavior, the rise of new user groups and community adoption of products and services, and innovations in product technologies and platforms.

More critical scholars have also studied key emerging markets like Mexico and Turkey. Thomas Marois (2012, 2) argues that financial imperatives have become much more significant and has developed the idea of 'emerging finance capitalism' - an era wherein the collective interests of financial capital principally shape the logical options and choices of government and state elites over and above those of labor and popular classes.^[13]

Julien Vercueil recently proposed an pragmatic definition of the "emerging economies", as distinguished from "emerging markets" coined by an approach heavily influenced by financial criteria. According to his definition, an emerging economy displays the following characteristics:^[14]

Intermediate income: its PPP per capita income is comprised between 10% and 75% of the average EU per capita income.

Catching-up growth: during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.

Institutional transformations and economic opening: during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy. Hence, emerging economies appears to be a by-product of the current globalization.

At the beginning of the 2010s, more than 50 countries, representing 60% of the world's population and 45% of its GDP, matched these criteria.^[14]^:10 Among them, the BRICs.

Newly industrialized countries as of 2013. This is an intermediate category between fully developed and developing.

The term "rapidly developing economies" is being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

In recent years, new terms have emerged to describe the largest developing countries such as BRIC that stands for Brazil, Russia, India, and China,^[15] along with BRICET (BRIC + Eastern Europe and Turkey), BRICS (BRIC + South Africa), BRICM (BRIC + Mexico), MINT (Mexico, Indonesia, Nigeria and Turkey), Next Eleven (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).^[16] These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms.

It is difficult to make an exact list of emerging (or developed) markets; the best guides tend to be investment information sources like EMIS, (a Euromoney Institutional Investor Company) and The Economist or market index makers (such as Morgan Stanley Capital International). These sources are well-informed, but the nature of investment information sources leads to two potential problems. One is an element of historicity; markets may be maintained in an index for continuity, even if the countries have since developed past the emerging market phase. Possible examples of this are South Korea^[17] and Taiwan. A second is the simplification inherent in making an index; small countries, or countries with limited market liquidity are often not considered, with their larger neighbours considered an appropriate stand-in.

In an Opalesque.TV video, hedge fund manager Jonathan Binder discusses the current and future relevance of the term "emerging markets" in the financial world. Binder says that in the future investors will not necessarily think of the traditional classifications of "G10" (or G7) versus "emerging markets". Instead, people should look at the world as countries that are fiscally responsible and countries that are not. Whether that country is in Europe or in South America should make no difference, making the traditional "blocs" of categorization irrelevant. Guégan et al. (2014) also discuss the relevance of the terminology "emerging country" comparing the credit worthiness of so-called emerging countries to so-called developed countries. According to their analysis, depending on the criteria used, the term may not always be appropriate.^[18]

The 10 Big Emerging Markets (BEM) economies are (alphabetically ordered): Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey.^[19] Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand are other major emerging markets.

Newly industrialized countries are emerging markets whose economies have not yet reached developed status but have, in a macroeconomic sense, outpaced their developing counterparts.

Individual investors can invest in emerging markets by buying into emerging markets or global funds. If they want to pick single stocks or make their own bets they can do it either through ADRs (American depositor Receipts - stocks of foreign companies that trade on US stock exchanges) or through exchange traded funds (exchange traded funds or ETFs hold basket of stocks). The exchange traded funds can be focused on a particular country (e.g., China, India) or region (e.g., Asia-Pacific, Latin America).

Commonly listed

Various sources list countries as "emerging economies" as indicated by the table below.

A few countries appear in every list (BRICS, Mexico, Turkey). Indonesia and Turkey are categorized with Mexico and Nigeria as part of the MINT economies. While there are no commonly agreed upon parameters on which the countries can be classified as "Emerging Economies", several firms have developed detailed methodologies to identify the top performing emerging economies every year^[20]

Emerging Markets by Each Group of Analysts
Country	IMF^[21]	BRICS+ Next Eleven	FTSE^[22]	MSCI^[23]	S&P^[24]	EM bond index^[25]	Dow Jones^[24]	Russell^[26]	Columbia University EMGP^[27]
Argentina	Y					Y			Y
Bangladesh	Y	Y	Y	Y	Y	Y
Brazil	Y	Y	Y	Y	Y	Y	Y	Y	Y
Bulgaria	Y
Chile	Y		Y	Y	Y	Y	Y	Y	Y
China	Y	Y	Y	Y	Y	Y	Y	Y	Y
Colombia	Y		Y	Y	Y	Y	Y	Y	Y
Czech Republic			Y	Y	Y	Y	Y	Y
Egypt		Y	Y	Y	Y	Y	Y		Y
Greece				Y	Y		Y	Y
Hungary	Y		Y	Y	Y	Y	Y	Y	Y
India	Y	Y	Y	Y	Y	Y	Y	Y	Y
Indonesia	Y	Y	Y	Y	Y	Y	Y	Y
Iran		Y
Israel						Y			Y
Malaysia	Y		Y	Y	Y	Y	Y	Y
Mauritius									Y
Mexico	Y	Y	Y	Y	Y	Y	Y	Y	Y
Nigeria		Y				Y
Oman						Y
Pakistan	Y	Y	Y	Y		Y
Peru	Y		Y	Y	Y	Y	Y	Y
Philippines	Y	Y	Y	Y	Y	Y	Y	Y	Y
Poland	Y		Y	Y	Y	Y	Y	Y	Y
Qatar				Y		Y	Y
Romania	Y					Y
Russia	Y	Y	Y	Y	Y	Y	Y	Y	Y
Slovenia									Y
South Africa	Y	Y	Y	Y	Y	Y	Y	Y	Y
South Korea		Y		Y				Y	Y
Taiwan			Y	Y	Y	Y	Y	Y	Y
Thailand	Y		Y	Y	Y	Y	Y	Y	Y
Turkey	Y	Y	Y	Y	Y	Y	Y	Y	Y
Ukraine	Y					Y
United Arab Emirates			Y	Y		Y	Y	Y	Y
Venezuela	Y					Y
Vietnam		Y				Y

BBVA Research

In November 2010, BBVA Research introduced a new economic concept, to identify a key emerging markets.^[28] This classification is divided in two set of developing economies.

As of March 2014, the groupings are as follows:

EAGLEs (emerging and growth-leading economies): Expected Incremental GDP in the next 10 years to be larger than the average of the G7 economies, excluding the US.

NEST: Expected Incremental GDP in the next decade to be lower than the average of the G6 economies (G7 excluding the US) but higher than Italy’s.

Other emerging markets^[29]

Emerging Market Bond Index Global

The Emerging Market Bond Index Global (EMBI Global) by J.P. Morgan was the first comprehensive EM sovereign index in the market, after the EMBI+. It provides full coverage of the EM asset class with representative countries, investable instruments (sovereign and quasi-sovereign), and transparent rules. The EMBI Global includes only USD-denominated emerging markets sovereign bonds and uses a traditional, market capitalization weighted method for country allocation.^[30] As of March end 2016, the EMBI Global's market capitalization was $692.3bn.^[25]

For country inclusion, a country’s GNI per capita must be below the Index Income Ceiling (IIC) for three consecutive years to be eligible for inclusion to the EMBI Global. J.P. Morgan defines the Index Income Ceiling (IIC) as the GNI per capita level that is adjusted every year by the growth rate of the World GNI per capita, Atlas method (current US$), provided by the World Bank annually. An existing country may be considered for removal from the index if its GNI per capita is above the Index Income Ceiling (IIC) for three consecutive years as well as the country’s long term foreign currency sovereign credit rating (the available ratings from all three agencies: S&P, Moody’s & Fitch) is A-/A3/A- (inclusive) or above for three consecutive years.^[30]

J.P. Morgan has introduced what is called an “Index Income Ceiling” (IIC), defined as the income level that is adjusted every year by the growth rate of the World GNI per capita, provided by the World Bank as “GNI per capita, Atlas method (current US$) annually.” Once a country has GNI per capita below or above the IIC level for three consecutive years, the country eligibility will be determined.^[30]

J.P. Morgan have established the base IIC level in 1987 to match the World Bank High Income threshold at US$6,000 GNI per capita.
Every year, growth in the World GNI per capita figure is applied to the IIC, establishing a new IIC that is dynamic over time.
This approach ensures that our cutoff for index removal is adjusted by the World income growth rate, and not by the inflation rate of a smaller sample of Developed economies.
This metric essentially incorporates real global growth, global inflation, and currency exchange rate (current USD-denominated) changes.
Essentially, the introduction of the IIC establishes a higher, more appropriate threshold for country eligibility in the EMBI Global/Diversified.

Emerging Markets Index

The Emerging Markets Index by MasterCard is a list of the top 65 cities in emerging markets. The following countries had cities featured on the list (as of 2008):

Global Growth Generators

"Global Growth Generators", or 3G (countries), is an alternative classification determined by Citigroup analysts as being countries with the most promising growth prospects for 2010-2050. These consist of Indonesia, Egypt, seven other emerging countries, and two countries not previously listed before, specifically Iraq and Mongolia. There has been disagreement about the reclassification of these countries, among others, for the purpose of acronym creation as was seen with the BRICS.

Estimating Demand in Emerging Markets

Estimating the demand for products or services in emerging markets and developing economies can be complex and challenging for managers. These countries have unique commercial environments and may be limited in terms of reliable data, market research firms, and trained interviewers. Consumers in some of these countries may consider surveys an invasion of privacy.^[31] Survey respondents may try to please researchers by telling them what they want to hear rather than providing honest answers to their questions. However some companies have dedicated their entire business units for understanding the dynamics of emerging markets owing to their peculiarity^[32]

References

↑ "MSCI Market Classification Framework" (PDF).
↑ "Greece First Developed Market Cut to Emerging at MSCI - Bloomberg".
↑ MSCI will downgrade Argentina to frontier market - MarketWatch MarketWatch
↑ Russia Faces Specter of Index Demotion…Again - Yahoo Finance
↑ "Emerging Economies and the Transformation of International Business" By Subhash Chandra Jain. Edward Elgar Publishing, 2006 p. 384.
↑ "Acronyms BRIC out all over". The Economist. The Economist. September 18, 2008. Retrieved April 14, 2011.
↑ http://www.business-standard.com/india/news/brics-is-passe-time-now-for-%5C3g%5C-citi/126725/on
↑ "Iran-US Rapprochement: Historic Opportunities Beckon". -Business Monitor International. January 10, 2014. Archived from the original on March 23, 2014.
↑ FT.com / Columnists / John Authers - The Long View: How adventurous are emerging markets?
↑
↑ Kvint, Vladimir (2009). The Global Emerging Market: Strategic Management and Economics. New York, London: Routledge.
↑ Emerging Economy Report
↑ Marois, Thomas (2012). States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey. Cheltenham, Gloucestershire, UK: Edward Elgar.
1 2 Vercueil, Julien: "Les pays émergents. Brésil - Russie - Inde - Chine... Mutations économiques et nouveaux défis " (Emerging Countries. Brazil - Russia - India - China.. Economic change and new challenges", in French). Paris: Bréal, 3rd Edition, 2012, 232 p.
↑ Five Years of China’s WTO Membership. EU and US Perspectives on China’s Compliance with Transparency Commitments and the Transitional Review Mechanism, Legal Issues of Economic Integration, Kluwer Law International, Volume 33, Number 3, pp. 263-304, 2006. by Paolo Farah
↑ "After BRICs, look to CIVETS for growth - HSBC CEO"
↑ Classified by FTSE as a developed market.
↑ Guégan, D.; Hassani, B.K.; Zhao, X. (2014). "Emerging Countries Sovereign Rating Adjustment using Market Information: Impact on Financial Institutions Investment Decisions". In El Hedi Arouri, M.; Boubaker, S.; Khuong Nguyen, D. Emerging Markets and the Global Economy: A Handbook. Oxford, UK: Academic Press. pp. 17–49.
↑ "The Big Ten". Retrieved 13 February 2015.
↑ "Boston Analytics - Pathways to identifying top performing Emerging Markets".
↑ As of October, 2015. http://www.imf.org/external/pubs/ft/weo/2015/02/pdf/text.pdf
↑ Advanced and Secondary Emerging Markets listed at: "FTSE Annual Country Classification Review" (PDF). FTSE Group. September 2014. Retrieved 2015-02-04.
↑ "MSCI Emerging Markets Indexes". Retrieved 2015-02-02.
1 2 http://www.spindices.com/documents/index-news-and-announcements/20131030-spdji-country-classification-results.pdf
1 2 J.P. Morgan (April 1, 2016). "Emerging Markets Bond Index Monitor March 2016". J.P. Morgan. Retrieved April 1, 2016.
↑ "Russell construction methodology" (PDF). October 2014. Retrieved 2015-02-02.
↑ "Emerging Market Global Players (EMGP)". Retrieved 2015-02-02.
↑ https://www.bbvaresearch.com/KETD/fbin/mult/2014_EAGLEs_Economic_Outllok-Annual_tcm348-437158.pdf?ts=3132014
↑ EAGLEs_Outlook_Annual_Report_2012 (20 February 2012), page 9
1 2 3 J.P. Morgan (2015). EMBI Global and EMBI Global Diversified Rules and Methodology. J.P. Morgan. pp. 10 pp.
↑ Cavusgil, Tamer (2008). International business: strategy, management, and the new realities. Pearson Prentice Hall. ISBN 0-13-173860-7.
↑ "Boston Analytics - Doing Business in Emerging Markets Framework".

Sources

Goldman Sachs Paper No.134 BRIMC (English)
CIVETS countries - Colombia Official Investment Portal (English)
Michael Pettis, The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (2001) ISBN 0-19-514330-2

External links

Look up emerging market in Wiktionary, the free dictionary.

Emerging Markets Review Emerging Markets: A Review of Business and Legal Issues
Emerging markets: leading the way to recovery Grant Thornton International Business Report
Winning in Emerging Markets: Five Key Supply Chain Capabilities by Edgar E. Blanco. MIT Center for Transportation & Logistics.
Investment Issues in Emerging Markets - Research Foundation of CFA Institute

South–South cooperation and Third Worldism

Global South

Development	Landlocked developing countries Least Developed Countries Heavily indebted poor countries

Markets	Emerging markets Newly industrialized country Transition economy

Worlds Theory	First World Second World Third World Fourth World

Geopolitics

Decolonization Cold War Neocolonialism Multipolarity World Conference against Racism Durban I Durban II Durban III Globalization

BRICS	Brazil–Russia–India–China–South Africa (BRICS) BASIC (BRICS less Russia) BRIC (BRICS less South Africa) India–Brazil–South Africa Dialogue Forum (IBSA)

Finance

Trade and
development

Public health

Organizations
and groups

North–South
divide

Power in international relations

Types	Economic Energy Food Hard National Power politics Realpolitik Smart Soft

Status	Emerging Small Middle Regional Great Super

Geopolitics	American Asian British Chinese Indian Pacific

History	List of ancient great powers List of medieval great powers List of modern great powers International relations of the Great Powers (1814–1919)

Theory	Balance of power European Center of power Hegemonic stability theory Philosophy of power Polarity Power projection Power transition theory Second Superpower Sphere of influence Superpower collapse Superpower disengagement

Studies	Composite Index of National Capability Comprehensive National Power

Organizations and groups by region or regions affected

Africa	African Union Union for the Mediterranean

Africa–Asia	Arab League Cooperation Council for the Arab States of the Gulf (GCC) Organization of Islamic Cooperation (OIC)

Americas	Mercosur North Atlantic Treaty Organization (NATO) Organization of American States (OAS) Union of South American Nations (Unasur)

Asia	Asia Cooperation Dialogue (ACD) Asia-Pacific Economic Cooperation (APEC) Association of Southeast Asian Nations (ASEAN) China–Japan–South Korea trilateral summits Economic Cooperation Organization (ECO) South Asian Association for Regional Cooperation (SAARC) Shanghai Cooperation Organisation (SCO)

Europe	Council of Europe (CE) European Union (EU)

Eurasia	Commonwealth of Independent States (CIS) Collective Security Treaty Organization (CSTO) Economic Cooperation Organization (ECO) Eurasian Economic Union (EaEU) Turkic Council

North America–Europe	North Atlantic Treaty Organization (NATO)

Africa–Asia–Europe	Union for the Mediterranean

Africa–South America	South Atlantic Peace and Cooperation Zone

Pacific	Australia–New Zealand–United States Security Treaty (ANZUS) Asia-Pacific Economic Cooperation (APEC) Melanesian Spearhead Group (MSG) Pacific Islands Forum (PIF) Polynesian Leaders Group (PLG)

Non-regional	Brazil–Russia–India–China–South Africa (BRICS) Commonwealth of Nations Colombia–Indonesia–Vietnam–Egypt–Turkey–South Africa (CIVETS) E7 E9 G4 G7 G8 G8+5 G20 G24 G77 India–Brazil–South Africa Dialogue Forum (IBSA) Mexico–Indonesia–Nigeria–Turkey (MINT) Next Eleven (N-11) Non-Aligned Movement (NAM) Organization for Economic Co-operation and Development (OECD) Uniting for Consensus

Global	United Nations (UN)

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