What Is an Emerging Market?

By 2030, emerging markets will account for 60% of global GDP. While that’s a number too large to ignore, many overlook these markets or don’t even understand what they really are.

What is an emerging market, and where are they located? Keep reading for an explainer in this brief emerging market guide.

What Is an Emerging Market?

An emerging market, also called an emerging economy, is one that is increasing production and experiencing notable economic growth. In many cases, they’re found in countries that are transitioning between “developing” and “developed.”

For understanding emerging markets, it’s helpful to know the main characteristics that set them apart from other economies. There are five defining features.

1. Market Volatility

Emerging markets tend to be extremely volatile and unpredictable, often because of political and social unrest.

Another factor that lends to volatility is natural disasters. Countries that rely on agriculture to fuel their economy may be especially vulnerable to market volatility.

2. Quick Growth

One attractive feature of these markets is that they’re growing quickly. In fact, their growth outpaces that of developed countries.

But this growth can change at any time, and a slow period or sudden crash is a possibility that shouldn’t be overlooked.

3. High Return on Investment

The return on investment in emerging markets tends to be especially high.

As growth continues, returns can be expected to soar.

4. Low Incomes

Incomes in emerging market countries tend to be lower than those in developed countries.

This is part of what places economies like China and India in the “emerging” category. Even though their economies are robust, local workers continue to receive low wages, despite high output.

5. Swings in Commodities and Currencies

Currency and commodity swings are common in emerging markets because they have little global and political influence.

This can lead to price spikes and limited access to certain essential goods.

Countries With Emerging Markets

There are several countries that are considered to have emerging markets.

Some of the top emerging markets include:

• China
• Brazil
• India
• Russia
• Chile
• Mexico
• Thailand
• Indonesia
• South Africa

Lists of emerging market countries may differ, and some organizations may choose to promote or demote a market’s status depending on recent trends and economic activity.

Emerging Market Tips

Emerging markets can be attractive for investors because of the high return on investment and potential for growth.

But emerging markets are also extremely volatile, creating a considerable risk for those looking to invest in them. Still, there are plenty of opportunities in these economies.

Investing in an emerging market fund is a great way to get started. And while these investments are still high-risk, they make up for it in their hefty returns over time.

You can also invest in emerging market debt, as modeled successfully by GoldenTree.

But keep in mind that not all emerging markets are the same or offer the same benefits to investors. Some developing countries have a clear and well-designed plan for how to use new money in their economy. But others are less organized, meaning your investments won’t go as far.

Be sure to do your research on different emerging markets, their histories, and local economic activity before choosing where to invest.

Emerging Markets Explained

Emerging markets are a key player in the global economy, but what is an emerging market?

Now you have a better idea for what these markets are and why they may be attractive to investors, despite their risks.

Learn more about investment opportunities in our latest business articles!