Emerging markets refer to countries with growing economies that are rapidly industrializing and expanding. The question posed is whether it's advisable to invest in these evolving markets.
Emerging Markets: Rapid Growth and Investment Opportunities
Emerging markets are countries that are transitioning from low-income, less-industrialized economies to more developed economies. These markets are characterized by rapid GDP growth, expanding exports, and developing financial infrastructure, such as stock exchanges. Although they present higher growth potential, they also come with greater volatility and risk compared to developed markets [1][2].
The International Monetary Fund (IMF) and MSCI, a leading provider of investment decision support tools worldwide, both classify emerging markets but use slightly different criteria and country lists. The IMF broadly defines emerging markets as economies in transition with ongoing rapid growth and integration into global trade, featuring developing financial markets and increasing foreign investment [1][3]. MSCI specifically categorizes 24 countries as emerging markets, focusing on financial market accessibility, liquidity, and economic development [2][4].
According to MSCI, the following countries are classified as emerging markets: Brazil, China, India, Indonesia, Mexico, South Africa, Turkey, Philippines, Thailand, Malaysia, Taiwan, Russia, Colombia, Chile, and others. The IMF's emerging markets coverage can be more flexible, classifying countries based on economic conditions and data reporting [1][3].
Investing in emerging markets can be complex, and geopolitical issues can significantly impact their investments. For instance, the downturn in Russia's investments was seen following its invasion of Ukraine in 2022. However, some investors seek out resilient businesses in emerging markets to buy at a discount. Investors can consider emerging markets-focused investment trusts like Templeton Emerging Markets Investment Trust and Fidelity Emerging Markets Limited (LON:FEML).
Fidelity Emerging Markets Limited, for example, can invest up to 30% of its portfolio in short positions, particularly when a business operates in a sector with structural decline and governance issues. Fluctuations in foreign exchange rates can impact emerging market economies, but the current trend towards de-dollarisation may benefit them.
Investors can add exposure to emerging markets through low-cost index funds such as iShares MSCI Emerging Markets ETF (LON:0JHF) and Vanguard FTSE Emerging Markets ETF (LON:0LMP). It's important to note that some emerging markets have risks associated with corporate governance, as exemplified by China.
As of 2025, the US dollar's global perception has changed, potentially benefiting emerging market assets due to their undervaluation. The International Monetary Fund classifies 40 countries as 'emerging market and middle-income', including Brazil, Russia, India, China, and South Africa.
References: 1. World Bank 2. MSCI 3. IMF 4. Investopedia
Tariffs on imports to emerging markets can impact investing, potentially affecting the competitiveness of local industries, and altering the returns on investments in these countries. Furthermore, expanding financial infrastructure in emerging markets could attract more foreign investment, offering profitable opportunities for investors willing to navigate the inherent risks and volatility.
