Rapidly growing and volatile economies of certain Asian and Latin American countries.

They
promise huge potential for growth but also pose significant political, monetary, and social risks

Emerging markets are nations with social or business activity in the process of rapid growth
and industrialization. At 2006, there are around 28 emerging markets (at 2010, more than 40
emerging markets) in the world, with the economies of China and India considered to be the
largest.[1] According to The Economist many people find the term outdated, but no new term has
yet to gain much traction.[2]

The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional
emerging market in the world.

n the 1970s, "less economically developed countries" (LEDCs) 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. This term was felt by
some to be not positive enough so the emerging market label was born. This 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 (e.g., Argentina) can also
move from "more developed" to "less developed".

Originally brought into fashion in the 1980s by then World Bank economist Antoine van
Agtmael,[4] 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 Indonesia, Iran, some
countries of Latin America, some countries in Southeast Asia, most countries in Eastern Europe,
Russia, some countries in the Middle East, and parts of Africa. 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".[5]

The research on emerging markets is diffused within management literature. While researchers
including C. K. Prahalad, George Haley, 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 the 2008 Emerging Economy Report,[6] 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.
Newly industrialized countries as of 2010. 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 [7], along with BRICET (BRIC + Eastern
Europe and Turkey), BRICS (BRIC + South Africa), BRICM (BRIC + Mexico) , BRICK (BRIC
+ South Korea), Next Eleven (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan,
Philippines, South Korea, Turkey, and Vietnam) and CIVETS (Colombia, Indonesia, Vietnam,
Egypt, Turkey and South Africa).[8] 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 ISI Emerging Markets 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[9]
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.

The Big Emerging Market (BEM) economies are (alphabetically ordered): Brazil, China, Egypt,
India, Indonesia, Mexico, Philippines, Poland, Russia, South Africa, South Korea[9] and Turkey.
[10]
It has been argued that geographic diversification would generate superior risk-adjusted returns
for long-term global investors by reducing overall portfolio risk while capturing some of the
higher rates of return offered by the emerging markets of Asia and Latin America.[11]

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

Individual investors can invest in emerging markets 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).

[edit] FTSE list

The FTSE Group distinguishes between Advanced and Secondary Emerging markets on the
basis of their national income and the development of their market infrastructure. The Advanced
Emerging markets are classified as such because they are upper middle income GNI countries
with advanced market infrastructures or high income GNI countries with lesser developed
market infrastructures.

What are they?

Emerging markets are countries that are restructuring their economies along market-oriented
lines and offer a wealth of opportunities in trade, technology transfers, and foreign direct
investment. According to the World Bank, the five biggest emerging markets are China, India,
Indonesia, Brazil and Russia. Other countries that are also considered as emerging markets
include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea. These countries
made a critical transition from a developing country to an emerging market. Each of them is
important as an individual market and the combined effect of the group as a whole will change
the face of global economics and politics.

What makes them different?

Emerging markets stand out due to four major characteristics. First, they are regional economic
powerhouses with large populations, large resource bases, and large markets. Their economic
success will spur development in the countries around them; but if they experience an economic
crisis, they can bring their neighbors down with them. Second, they are transitional societies that
are undertaking domestic economic and political reforms. They adopt open door policies to
replace their traditional state interventionist policies that failed to produce sustainable economic
growth. Third, they are the world's fastest growing economies, contributing to a great deal of the
world's explosive growth of trade. By 2020, the five biggest emerging markets' share of world
output will double to 16.1 percent from 7.8 percent in 1992. They will also become more
significant buyers of goods and services than industrialized countries. Fourth, they are critical
participants in the world's major political, economic, and social affairs. They are seeking a larger
voice in international politics and a bigger slice of the global economic pie.

What brings them into being?

There are two potential causes for the creation of emerging markets: the failure of state-led
economic development and the need for capital investment. First, state-led economic
development failed to produce sustainable growth in the traditional developing countries. This
failure and its tremendous negative impact pushed those countries to adopt open door policies,
and to change from the state's being in charge of the economy to facilitating economic growth
along market-oriented lines. Second, the developing counties desperately needed capital to
finance their development, but the traditional government borrowing failed to fuel the
development process. In the past, the governments of the developing countries borrowed either
from commercial banks or from foreign governments and multilateral lenders like the IMF and
the Word Bank. This often resulted in heavy debt overload and led to a severe economic
imbalance. The past track record of many developing countries also demonstrates their inability
to well manage and efficiently operate the borrowed funds to support economic growth. In light
of the unsatisfactory results of government borrowing, developing countries began to rely on
equity investment as a means of financing economic growth. They seek to attract equity
investment from private investors who will become their partners in development. To attract
equity financing, a developing country has to establish the preconditions of a market economy
and create a business climate that meets the expectations of foreign investors. This change in
financing sources thus became another factor leading to the rise of emerging markets.

How do they change the traditional view of development?

The rise of emerging markets is changing the traditional view of development as follows. First,
foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no
longer associated with the traditional notion of providing development assistance to poorer
nations. Second, emerging markets are rationalizing their trade relations and capital investment
with industrialized countries. Trade and capital flows are directed more toward new market
opportunities, and less by political consideration. Third, the increasing two-way trade and capital
flows between emerging markets and industrialized countries reflect the transition from
dependency to global interdependency. The accelerated information exchange, especially with
the aid of the Internet, is integrating emerging markets into the global market at a faster pace.

What challenges do they face?

In their effort to create a market economy and to ensure sustainable development, emerging
markets still face big challenges that come from fundamental problems associated with their
traditional economic and political systems. A market economy requires those countries to
redefine the role of the government in the development process and to reduce the government's
undue intervention. Another serious problem that those countries have to confront is controlling
corruption, which distorts the business environment and impedes the development process. An
even more challenging task for those countries is to undertake structural reforms with their
financial system, legal system, and political system, so as to guarantee a disciplined and stable
economy that is relatively free of political disturbances and interference.

What are their prospects?

Emerging markets are the "key swing factor" in the future growth of world trade and global
financial stability, and they will become critical players in global politics. They have a huge
untapped potential and they are determined to undertake domestic reforms to support sustainable
economic growth. If they can maintain political stability and succeed with their structural
reforms, their future is promising.

An emerging market economy (EME) is defined as an economy with low to middle per capita
income. Such countries constitute approximately 80% of the global population, and represent
about 20% of the world's economies. The term was coined in 1981 by Antoine W. Van Agtmael
of the International Finance Corporation of the World Bank.

Although the term "emerging market" is loosely defined, countries that fall into this category,
varying from very big to very small, are usually considered emerging because of their
developments and reforms. Hence, even though China is deemed one of the world's economic
powerhouses, it is lumped into the category alongside much smaller economies with a great deal
less resources, like Tunisia. Both China and Tunisia belong to this category because both have
embarked on economic development and reform programs, and have begun to open up their
markets and "emerge" onto the global scene. EMEs are considered to be fast-growing economies.

What an EME Looks Like

EMEs are characterized as transitional, meaning they are in the process of moving from a closed
economy to an open market economy while building accountability within the system. Examples
include the former Soviet Union and Eastern bloc countries. As an emerging market, a country is
embarking on an economic reform program that will lead it to stronger and more responsible
economic performance levels, as well as transparency and efficiency in the capital market. An
EME will also reform its exchange rate system because a stable local currency builds confidence
in an economy, especially when foreigners are considering investing. Exchange rate reforms also
reduce the desire for local investors to send their capital abroad (capital flight). Besides
implementing reforms, an EME is also most likely receiving aid and guidance from large donor
countries and/or world organizations such as the World Bank and International Monetary Fund.

One key characteristic of the EME is an increase in both local and foreign investment (portfolio
and direct). A growth in investment in a country often indicates that the country has been able to
build confidence in the local economy. Moreover, foreign investment is a signal that the world
has begun to take notice of the emerging market, and when international capital flows are
directed toward an EME, the injection of foreign currency into the local economy adds volume to
the country's stock market and long-term investment to the infrastructure.

For foreign investors or developed-economy businesses, an EME provides an outlet for

expansion by serving, for example, as a new place for a new factory or for new sources of
revenue. For the recipient country, employment levels rise, labor and managerial skills become
more refined, and a sharing and transfer of technology occurs. In the long-run, the EME's overall
production levels should rise, increasing its gross domestic product and eventually lessening the
gap between the emerged and emerging worlds.

Portfolio Investment and Risks

Because their markets are in transition and hence not stable, emerging markets offer an
opportunity to investors who are looking to add some risk to their portfolios. The possibility for
some economies to fall back into a not-completely-resolved civil war or a revolution sparking a
change in government could result in a return to nationalization, expropriation and the collapse
of the capital market. Because the risk of an EME investment is higher than an investment in a
developed market, panic, speculation and knee-jerk reactions are also more common - the 1997
Asian crisis, during which international portfolio flows into these countries actually began to
reverse themselves, is a good example of how EMEs can be high-risk investment opportunities.
(For more insight on getting into emerging economies, read Forging Frontier Markets.)

However, the bigger the risk, the bigger the reward, so emerging market investments have
become a standard practice among investors aiming to diversify while adding risk. (For more
details on the advantages and disadvantages of making foreign investments, see Is Offshore
Investing For You? and Going International.)

Local Politics vs. Global Economy

An emerging market economy must have to weigh local political and social factors as it attempts
to open up its economy to the world. The people of an emerging market, who are accustomed to
being protected from the outside world, can often be distrustful of foreign investment. Emerging
economies may also often have to deal with issues of national pride because citizens may be
opposed to having foreigners owning parts of the local economy.

Moreover, opening up an emerging economy means that it will also be exposed not only to new
work ethics and standards, but also to new cultures. The introduction and impact of, say, fast
food and music videos to some local markets has been a by-product of foreign investment. Over
the generations, this can change the very fabric of a society and if a population is not fully
trusting of change, it may fight back hard to stop it.

Conclusion
Although emerging economies may be able to look forward to brighter opportunities and offer
new areas of investment for foreign and developed economies, local officials in EMEs need to
consider the effects of an open economy on citizens. Furthermore, investors need to determine
the risks when considering investing in an EME. The process of emergence may be difficult,
slow and often stagnant at times. And even though emerging markets have survived global and
local challenges in the past, they had to overcome some large obstacles to do so.