The phrase “emerging markets” refers to a developing country’s economy that becomes more involved with global markets as it progresses. Since they haven’t “emerged,” emerging markets are called “emerging.” Greater liquidity in local debt and stock markets, increasing foreign direct investment and trade volume, and the domestic growth of new regulatory and financial institutions are all indicators that an emerging market economy is becoming more connected with the global economy.
The countries categorized as emerging markets are those with the process of changing from a “developing” to a “developed” status. Emerging markets are countries that are increasing their manufacturing capabilities and adapt traditional economies depending on agriculture and raw commodity exports but are transitioning away from it. These countries’ leaders do it to improve the lives of their citizens.
The Characteristics of Emerging Markets:
- High market volatility – since emerging markets lack the authority to control movements such as volatile currency and commodity swings, they are more vulnerable to it.
- Rapid growth and investment potential – since most of these countries engage in an export-driven strategy, emerging markets are frequently appealing to international investors due to the high return on investment they may bring.
- Low income per capita – opportunities for rapid growth are given by low income. The income per capita rises in line with GDP as the economy embraces industrialization and manufacturing activity.
- Information gaps – in several emerging markets, it is common for substantial and relevant information regarding reinvestment, debt, and earnings to be suppressed, making it more difficult to evaluate companies in these markets.