Domestic consumption is important in emerging markets.
Emerging markets are nations that show a trend of economic growth and have the potential to further increase their commercial and productive activity. However, these countries suffer from a situation of both financial and political instability .
It is often indicated that emerging markets are developing economies : they are in a transition between underdevelopment and consolidation as a developed nation. Due to their characteristics, these are territories that offer good investment opportunities.
Before continuing, it is interesting to analyze the two words that make up this concept. Market can refer to the region with relevance in the commercial context and to the set of activities carried out by economic agents. The adjective emergent , meanwhile, refers to that which emerges: comes to the surface, floats or appears.
Origin of emerging markets
The idea of an emerging market does not have a precise definition. In general, it refers to countries that are in a first stage of industrialization and are growing economically.
The notion was coined by the economist and consultant Antoine van Agtmael in the early 1980s . At that time, the International Finance Corporation ( IFC ) - an institution that belongs to the World Bank - carried out a market analysis of nations such as India , Thailand , South Korea , Greece , Mexico , Brazil and Argentina , among others that showed significant growth. . Van Agtmael , a member of the IFC , appealed to the name emerging markets to capture the dynamism of these developing economies .
Today it is understood that an emerging market presents conditions for growth but, at the same time, experiences obstacles linked above all to politics . That is why they are located halfway between less developed, underdeveloped or failed countries and developed countries.
Many emerging markets seek growth through regional integration.
Its characteristics
Emerging markets are characterized by an economy that is growing at a rapid pace . They are also territories with a large consumer market . The combination of these two features makes them offer opportunities for investment and international trade .
The size of its surface and the number of inhabitants are also factors that affect the definition. Other variables are growing industrialization, urban development and their progressive internationalization (that is, they have an increasingly relevant presence in the global context due to their imports and exports, by receiving foreign investment and by the landing of their national companies in the abroad).
While these characteristics are positive, there are factors that prevent faster or firmer growth . External debt , inflation and poor infrastructure , for example, make sustainable development difficult.
That is why structural reforms , legal security and political stability are often demanded from the governments of emerging countries. With certain adjustments, economists maintain, emerging markets could consolidate their growth and lead to developed societies with less poverty and inequality and a lower level of social conflict.
Emerging markets can advance at a faster pace with international cooperation and development aid.
Types of emerging markets
Classifying emerging markets can be done in different ways. FTSE Russell , for example, analyzes income level, solvency and other variables to rate them as follows:
- Advanced emerging markets : Such as South Africa , Brazil , Mexico , Thailand and Greece .
- Secondary emerging markets : These include China , Pakistan , Colombia and Romania .
- Emerging markets frontier : Cyprus , Jordan , Peru , Tunisia y Slovakia , entre otros.
It should be considered that classifications vary depending on the organization or company performing the analysis. On the other hand, a country can improve or worsen its position according to the evolution of its economic, political and social situation.
It is common for emerging markets to be grouped according to trade agreements, alliances or associations established by the countries. Thus we find the BRICS group (Brazil, Russia, India, China, South Africa) , originally formed by those five emerging markets. This association became, at the beginning of 2024 , BRICS+ as Saudi Arabia , the United Arab Emirates , Egypt , Ethiopia and Iran joined. It should be noted that Argentina had also been invited to join, but President Javier Milei , upon assuming office, rejected the proposal.
CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa) , meanwhile, is a group proposed by the director of the Economist Intelligence Unit ( EIU ) of The Economist to bring together these emerging markets that will grow, according to estimates , more than the G8 members in the next two decades. The acronym MINT (Mexico, Indonesia, Nigeria, Turkey) , on the other hand, was proposed by Fidelity Investments .
Its importance
Emerging markets are key in the international economic context. This is because they constitute a significant percentage of the world's GDP (Gross Domestic Product) .
Likewise, the great growth potential means that these nations can become even more relevant in the future. The development of information and communication technologies (ICT), industrialization and the emerging middle class that encourages consumption are elements that promote progress and make these countries attractive for foreign direct investment (FDI) .
It cannot fail to be mentioned that emerging markets usually have numerous natural resources to exploit and possibilities for infrastructure development. Investors, in this framework, demand market liberalization and privatization to facilitate the implementation of projects.
One piece of information that investors analyze when defining capital flows is country risk , which reflects the chances that a State will not be able to assume its financial obligations linked to sovereign bonds and other types of debt. They also study credit rating . The rulers of emerging countries usually pay attention to these indicators since they are decisive in the success of their monetary and economic policy in general.