GROWING AN EMERGING MARKET ECONOMY

REPORTER
CIN MUN MUAN
WHAT IS AN EMERGING-MARKET ECONOMY?

• An emerging market economy refers to a country that is in the

process of developing its economy to become more advanced. It
generates low to middle per capita income and is rapidly
expanding due to high production levels and significant
industrialization.
UNDERSTANDING EMERGING MARKET
ECONOMY

• Investors seek out emerging markets for the prospect of high returns, as they
often experience faster economic growth .
• However, along with higher returns usually comes much greater risk.
Investors’ risk in emerging market economies can include political instability,
domestic infrastructure problems, currency volatility, and illiquid equity, as
many large companies may still be "state-run" or private.
SIGNIFICANCE OF AN EMERGING MARKET
ECONOMY

• Emerging market economies in developing countries are essential

in driving global economic growth. Currently, emerging market
countries generate more than 50% of the world’s economic
growth. By 2050, it is predicted that the top three largest
economies will be China, India, and the United States. Two of the
three countries are emerging market economies.
HOW EMERGING MARKET ECONOMIES ARE
CLASSIFIED

• Emerging market economies are classified in different ways by different observers. Levels of income,
quality of financial systems, and growth rates are all popular criteria
• For example, the International Monetary Fund (IMF) classifies 23 countries as emerging markets, while
 Morgan Stanley Capital International (MSCI) classifies 24 countries as emerging markets; there are
some differences between the two lists. Standard and Poor's (S&P) classifies 23 and Russell classifies
19 countries as emerging markets, while Dow Jones classifies 22 countries as emerging markets.
• At any of these institution's discretion, a country can be removed from the list by either upgrading to a
developed nation or downgrading to a frontier nation. Likewise, developed nations may be downgraded
to an emerging market
Growth and investment potential
• Emerging markets are often attractive to foreign investors due to the high 
return on investment they can provide. In the transition from being an agriculture-
based economy to a developed economy, countries often require a large influx of
capital from foreign sources due to a shortage of domestic capital.
• Using their competitive advantage, such countries focus on exporting low-cost
goods to richer nations, which boosts GDP growth, stock prices, and returns for
investors.
CHARACTERISTICS OF AN EMERGING
MARKET ECONOMY
Increase in the middle class
• Economic improvement in a country can lift its people out of poverty, which shifts them into
the middle class. As countries increase their productivity levels and make use of additional
streams of income, it provides individuals with a higher standard of living, as they can get
more access to educational opportunities while enjoying better infrastructure and improved
technology.
Transition from a closed economy to an open economy
• Developing countries run a closed economy, as they mainly focus on the local agricultural
market. As such countries work towards economic advancement, they will want to engage in
international trade to stimulate economic activity.
CHARACTERISTICS OF AN EMERGING
MARKET ECONOMY
 Instability and volatility
• Emerging markets are vulnerable to changes, as their economies are still
developing. They are especially subject to
1. financial changes in currency,
2. interest rates
3. inflation.
In particular, they are impacted by changes in the pricing of commodities.
Attraction of foreign and local investments
• Investing in businesses in emerging markets is riskier than
businesses in developed countries. However, higher risk means
higher returns, which attracts investors.
The great thing about emerging market economies is that, usually, they grow.
To be specific, they grow more quickly than developed markets such as the US,
offering superior returns to investors who are willing to take the typical
emerging market risks of frequent upsets and setbacks.
• While most developed countries continue to suffer the negative consequences
of the European crisis, developing economies are leading economic growth.
Indeed, as recovery in developed countries is still risky and uncertain,
investors are increasingly looking to developing countries for opportunities. 
GROWTH OPPORTUNITY IN EMERGING
MARKETS

•  Products manufactured in emerging markets often are smaller and more basic
than the products in developed economies. They may seem like a step backward
to people in developed countries, but they can be vital to making life better for
those living in less-developed countries.
• Companies have taken advantage of the high education rate and low cost of
living in emerging markets. Customers for emerging-market high-technology
services are usually in developed countries, but lesser-developed countries
needing technological assistance turn to their emerging-market brethren for
more affordable expertise.
• Growing the middle class
• To a certain extent, an emerging market is really a market where a middle class is
emerging. As jobs and opportunities are created, more people move out of poverty and
into a comfortable middle zone where they can afford some luxuries that were
previously unimaginable. They go out and spend their money, creating more economic
activity.
• The middle class isn’t the only beneficiary. As a country’s economy improves, the poorest
people tend to become less poor, and even they have more money to spend. Even a
small improvement in income represents a huge increase in purchasing power.
• But these markets still face several common challenges, including uneven
regional development; inequality and low social consistency; poor
infrastructure and education; weak public governance and thus high formal
and informal costs of doing business; and urbanization and environmental
problems.
CONCLUSION

• Emerging markets are budding economies with a lot of volatility.

That said, investing in these countries comes with risks and
rewards. Having access to a different set of countries can offer
exposure for investors seeking higher yield, growth, and
diversification. Since each country is growing at its own pace,
identifying the outlook of this market can be challenging.