Emerging-market

An emerging market is a nation with social or business activity in the process of rapid growth and industrialization. The economies of China (Excluding Hong Kong and Macau, as both are developed) and India are considered to be the largest.[1] According to The Economist many people find the term outdated, but no new term has yet to gain much traction.[2] Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion.[3] The seven largest emerging and developing economies by either nominal or inflation-adjusted GDP are the BRIC countries (Brazil, Russia, India and China), as well as MIKT (Mexico, Indonesia, South-Korea and Turkey).

The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional emerging market in the world.[4]

Terminology


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. This term was thought by some to be politically incorrect so the emerging market label was created to hide the truth. 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,[5] 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, South Korea, 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".[6]

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 1999, 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"[7] In 2008 Emerging Economy Report,[8] 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.[9]

Julien Vercueil[10] 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 :

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

2. 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.

3. 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.[11] Among them, the BRICS.


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,[12] 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).[13] 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[14] 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 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[14] and Turkey.[15]

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 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).

International Monetary Fund list

As of July 16, 2012, the International Monetary Fund (IMF) labels the following countries as "emerging economies":[16]

1 Also included in the group of "advanced economies" by the IMF.

Columbia University EMGP List

As of April 1, 2013, the Columbia University includes the following economies into the watch list:

The EMGP project, a collaborative effort led by the Vale Columbia Center (VCC), brings together researchers on FDI from leading institutions in emerging markets to produce annual reports identifying the top multinationals from each of a number of emerging markets. Each report is posted on this website as well as on the website of the partner institution in the relevant country. The information in the reports, including the rankings by foreign assets, will be of interest to researchers, bankers, investors, and the media, as well as to multinational firms in many countries.

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 or lower middle income GNI countries with advanced market infrastructures or high income GNI countries with lesser developed market infrastructures.[18][19]

The Advanced Emerging markets are:

The Secondary Emerging markets include some low income, lower middle, upper middle and high income GNI countries with reasonable market infrastructures and significant size and some upper middle income GNI countries with lesser developed market infrastructures. The secondary emerging markets are:

MSCI list

As of June 2013, MSCI classified the following 23 countries as emerging markets:[22]

The following country has been reclassified to an Emerging market, effective from 27 November 2013:[23]

The following country has been reclassified to a Frontier market, effective from 27 November 2013:[23]

The following countries are currently under review for a reclassification to Developed market, with conclusions being announced in June 2014:[23]

The list tracked by The Economist is the same, except with Hong Kong, Singapore and Saudi Arabia included (MSCI classifies the first two as developed markets and the third one is unclassified due to foreign ownership restrictions).

S&P list

As of 31 December 2010, Standard and Poor's classified the following 20 countries as emerging markets:[24]

The  United Arab Emirates,  Qatar, and  Jordan are currently under review for being upgraded to the status of emerging market by S&P.[26]

Dow Jones list

As of September 2011, Dow Jones classified the following 22 countries as emerging markets:[27]

The following country is currently under Dow Jones' watchlist for a reclassification to Emerging market:[28]

The following countries are currently under Dow Jones' watchlist for a reclassification to Developed market:[28]

Frontier Strategy Group (F10) list

In July 2011, Frontier Strategy Group released the F-10, a list of the top 10 emerging markets Western multinational senior executives at Fortune 500 companies are tracking globally.[29]

The F-10 emerging market list is as follows:

BBVA Research

In November 2010, BBVA Research introduced a new economic concept, to identify a key emerging markets.[30] This classification is divided in two set of developing economies.

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[31]

Emerging Markets Index

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

Summary list

If we organize the lists above into the following table, only 1 country appears in every list (Next Eleven/BRIC, CIVETS, FTSE, MSCI, The Economist, S&P, Dow Jones, Columbia University EMGP), namely Turkey. Indonesia and Turkey are categorized with Mexico and Korea as part of the MIKT economies. Egypt, since January 25, 2011, has been affected by protests and is now in a transitional period. Several countries also only appear on one list. These are Iran (Next 11); Israel (Columbia University EMGP); Hong Kong, Singapore, and Saudi Arabia (The Economist); and Sudan, Tunisia, Ukraine, and Venezuela (BBVA).

Emerging Markets by Each Group of Analysts
Country IMF Next-11/BRIC CIVETS FTSE MSCI THE ECONOMIST S&P DOW JONES BBVA Columbia University EMGP
 Argentina Green tickY Green tickY Green tickY Green tickY
 Bahrain Green tickY Green tickY
 Bangladesh Green tickY Green tickY
 Brazil Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Bulgaria Green tickY Green tickY Green tickY
 Chile Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 China Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Colombia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Czech Republic Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Egypt Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Estonia Green tickY Green tickY Green tickY
 Hong Kong Green tickY
 Hungary Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 India Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Indonesia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Iran Green tickY
 Israel Green tickY
 Jordan Green tickY Green tickY
 Kuwait Green tickY Green tickY
 Latvia Green tickY Green tickY Green tickY
 Lithuania Green tickY Green tickY Green tickY
 Malaysia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Mauritius Green tickY Green tickY
 Mexico Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Morocco Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Nigeria Green tickY Green tickY Green tickY
 Oman Green tickY Green tickY
 Pakistan Green tickY Green tickY Green tickY Green tickY Green tickY
 Peru Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Philippines Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Poland Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Qatar Green tickY Green tickY
 Romania Green tickY Green tickY Green tickY
 Russia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Saudi Arabia Green tickY
 Singapore Green tickY
 Slovakia Green tickY Green tickY
 Slovenia Green tickY
 South Africa Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Sri Lanka Green tickY Green tickY
 South Korea Green tickY Green tickY Green tickY Green tickY Green tickY
 Sudan Green tickY
 Taiwan Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Thailand Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Turkey Red XN Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Tunisia Green tickY
 UAE Green tickY Green tickY Green tickY
 Ukraine Green tickY Green tickY
 Venezuela Green tickY Green tickY
 Vietnam Green tickY Green tickY Green tickY

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.

Six major emerging economies

According to World Bank issued at May 2011, BRIC countries plus South Korea and Indonesia will lead the world's economy with more than a half of all global growth by 2025.[32]

See also

References

General

Investment Issues in Emerging Markets - Research Foundation of CFA Institute

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
  • Julien Vercueil, Les pays émergents. Brésil Russie Inde Chine... mutations économiques et nouveaux défis ('Emerging Countries. Brazil Russia India China... : economic transformations and new challenges', in French). Paris : Bréal, 2010, 207 p. ISBN 978-2-7495-0957-0

External links

  • What Are Emerging Markets? University of Iowa Center for International Finance and Development (broken link)
  • 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.
  • HKUST Institute for Emerging Market Studies
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