What is an Emerging Market?

Emerging markets or emerging economies are markets that have few of the characteristics of a developed market but are not yet fully developed. The emerging market includes markets that in the future may emerge as developed markets or be in the past. It can broadly be classified into 39 economies; based on the factors such as higher per capita income rate, exports of diversified goods and services, and greater integration into the global financial system, the rest of the countries are classified as emerging markets or developing economies. One must understand the concept of an emerging market, its purpose and its associated characteristics before taking any initiative. Also, we will understand the five major emerging markets of the world.

In Simple Words 

Countries with rapid GDP growth and industrialisation, growing per capita income, increasing debt and equity markets liquidity, and established financial system infrastructures fall under the emerging market category.

Key Criteria of an Emerging Market 

· Countries that are not fully industrialised yet.

· Countries with a higher unemployment rate and poverty.

· Countries that have the potential to be developed countries.

· Reflects the characteristics of a developed market but does not meet the standards to be considered a developed market.

INDIA as an Emerging Country 

India holds good ranks among the well-known emerging markets in contemporary global economies. The Emerging market is a tool to evaluate a country’s socio-economic scenario regarding market growth and industrialisation. According to a recent survey, there are 28 emerging markets across the globe, of which India stands to affirm second place. India is developing at a rapid pace, and the recent economic development has had a positive impact on various sectors. India has witnessed significant development — in the agricultural, industrial, and service sectors — and today, the service sector contributes around 54 % of the annual GDP.

Due to increased demand, reputed companies are investing in the Indian market, and the foreign institutional investments (FII) amount has reached around the USD 10 billion mark. There has been an increase of around 85.1 % from USD 25.1 billion to USD 46.5 billion from FDI. These Foreign investments cast a favourable effect on the emerging market In India.

Characteristics of Emerging Markets

· Attractive Markets – Emerging economies are full of natural resources like raw materials, land, valuable minerals, Petrol & Oil, natural gases, etc., most of which are unexploited. However, these countries are densely populated. Therefore, they draw businesses by offering these natural resources and low-cost labour. The companies then provide employment opportunities and capital for the country.

· International Trade – Utilising the generous amount of natural resources, the developing countries engage in commerce, and IT, exchanging resources, knowledge, and capital. However, these countries tend to be export-oriented and maintain a good trade balance. Higher exports indicate positive capital inflow, whereas higher imports mean capital outflow.

· Higher Economic Growth – With maximum efficiency and increased economic activity, emerging countries often generate higher income. Due to this, most of the developing economies indicate positive growth in Gross Domestic Product. Further, these countries have a moderate per capita income, lower than developed countries and higher than under-developed countries. Henceforth, these economies are among the rapid-growing economies.

· Good Investment Options – Owing to these factors and the scope of these countries’ economic activities, they give better returns on investment. Moreover, even businesses profit from cheap resources and labour, and incentives. Because of this, most foreign investors find emerging nations an opportunity to generate profit.

· Moderate to High-Risk Markets – It is crucial to remember the levels of risk associated with such markets. These markets can be highly volatile, as they are just on the way to development. Therefore, a foreign Investor must become acquainted with these countries’ market behaviour, trends, and economic conditions before investing in them.

· Rapid Economic Growth – One way to characterise an emerging market is to examine its past and recent monetary data or the percentage increase in its gross domestic product (GDP). Experts consider emerging markets when they experience or surpass at least 3% in GDP growth but do not meet the growth standard of Developed Countries.

What is the Purpose of Emerging Markets?

Emerging and developing economies account for around 60% of global GDP, up against just under half a decade ago. They contributed up to 80% of global growth since the 2008 financial crisis, assisting in safer guarding jobs in advanced economies. Emerging markets have played an important role in the reduction of global poverty. Over the past three decades, China has uplifted more than 600 million people out of poverty.

Emerging and developing economies provide shelter to 85 per cent of the world’s population. These 85% matter to the global economy —because of strong linkages through economics, finance, geopolitics, trade, and personal connections.

Moreover, they remove the barriers to competition, cut red tape, enhance labour mobility, and invest more in education and research. This will unleash entrepreneurial energy and help attract private investment in ideas that are innovative, surprising, and advantageous.

Top 5 Emerging Markets Globally

1. China (GDP: $14,092.514 billion)

Although China is the second largest economy in the world, Yet China has been considered an EM economy for over 25 years. During the late nineties and early twenties, the Chinese economy was flourishing. Still, over the last decade, it has experienced an economic slowdown due to a rise in the state sector and mounting financial risk. In 2017, China’s growth saw an upsurge of up to 6.9 % as the demand for Chinese products increased domestically and globally. But in 2018, China’s growth was because of Beijing’s financial deleveraging policies.

2. India (GDP: $2,848.231 billion)

India is the third-largest emerging economy and the seventh-largest economy in the world. India’s economic development began in the 1990s when the government introduced new economic policies to boost market competition, per capita income, and the standard of living. By 2015, the Indian economy grew by 7.2%, faster than other emerging markets.

3. Brazil (GDP: $2,138.918 billion)

Brazil’s economy had displayed an impressive growth rate, but from 2010 onwards, problems arose, raising questions about the country’s economic future. Most of the market was concerned about the country’s government instability. But when the new President, Jair Bolsonaro, assumed office, he introduced multiple economic policies of cutting spending and reducing taxes that were well-received by financial markets. The Brazilian real gained 10% against the dollar ahead of his inauguration.

4. Russia (GDP: $1,719.900 billion)

Regarding GDP, Russia is the 12th largest economy in the world, although its growth rate was negative for most of the 1990s due to USSR-era sanctions. From 1999 to 2008, the country’s GDP grew by at least 4.7% each year.

In 2014, issues arose over Russia’s reliance on oil exports in the face of the international sanctions that followed the Russian military intervention in Ukraine. But efforts made later ensured financial stability. In 2021, Russia witnessed its best Gross Domestic Product growth since 2008, posting a 4.7% growth rate. But for the ongoing year, the expected GDP growth rate is -6%.

5. Mexico (GDP: $1,212.831 billion)

Mexico has quickly become one of the most known emerging markets among investors. The country is the second largest economy in Latin America after Brazil and the 13th largest economy globally. Although the country’s growth slowed during the global recession, its year-over-year GDP picked up in 2016 and continued to increase till 2018 – from USD 1.07 trillion in 2016 to almost USD 1.2 trillion in 2018.

Mexico’s economy is heavily dependent on exports to the US, which implies that the price of its domestic stock market and currency – the peso – is closely linked with the US dollar. But despite falls in the price of resources and volatility across global markets, the predictions for the country remain positive. Even Mexico’s GDP is expected to continue rising at an average of 2.5% in 2019.

During the COVID-19 pandemic, Emerging Market Economies (EMEs) and lower-income developing economies faced extreme vulnerability. Many EMEs have a weak public health system, poor and financially vulnerable populations, limited monetary, inadequate social safety net, and high exposure to global trade and commodity prices. Moreover, Emerging economies suffer from precarious access to international capital markets.

Amid deteriorating growth prospects, Emerging markets are expected to continue grappling with skyrocketing inflation and more costly borrowing terms. To cope with Skyrocketing inflation and borrowing costs, policies in these economies require careful calibration, credible frameworks, and clear communication. Both advanced and emerging market countries must complete and implement the global regulatory reform agenda—which is essential to create a more resilient global financial system.