Most investors with some experience will have heard about the opportunities available in emerging markets.
But the phrase can be vague and unclear, especially for beginner investors. So, what do we mean by ‘emerging markets’?
Confusingly, there isn’t any single definition of an emerging market, but the phrase generally refers to economies that are transitioning from being relatively undeveloped towards being a fully-fledged post-industrial economy with high standards of living.
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Which countries are emerging markets?
The closest thing to a universal definition of an emerging market is probably the International Monetary Fund’s ‘emerging market and middle-income’ classification, which applies to 40 countries. Some of the largest and most significant economies on this list are Brazil, Russia, India, China and South Africa, which collectively make up the ‘BRICS’ nations.
But for investors, a more relevant categorisation is MSCI, which divides national economies into five categories: developed, emerging, frontier, advanced frontier, and standalone markets. MSCI counts the following as emerging market economies:
Americas | EMEA | APAC |
|---|---|---|
Brazil | Czechia | China |
Chile | Egypt | India |
Columbia | Greece | Indonesia |
Mexico | Hungary | South Korea |
Peru | Kuwait | Malaysia |
| Row 5 - Cell 0 | Poland | Philippines |
| Row 6 - Cell 0 | Qatar | Taiwan |
| Row 7 - Cell 0 | Saudi Arabia | Thailand |
| Row 8 - Cell 0 | South Africa | Row 8 - Cell 2 |
| Row 9 - Cell 0 | Turkey | Row 9 - Cell 2 |
| Row 10 - Cell 0 | UAE | Row 10 - Cell 2 |
What are the characteristics of emerging markets?
While every emerging market is different (just as every country is different), the economic trajectory of emerging markets tends to lead to some general themes that are of interest to investors.
One of these is relatively fast economic growth rates. These countries tend to be increasing their standard of living, often from a fairly low starting point, and that gives high growth rates in terms of year-on-year percentages.
That often goes hand-in-hand with improving financial infrastructure. India, for example, has gone from a predominantly cash-based economy to the world’s largest digital payments market in less than a decade, thanks largely to investment in the unified payments interface (UPI) technology that underpins the country’s payments network.
Emerging markets also tend to have younger populations relative to developed economies, and often have rapidly improving standards of education.
That sounds like an investor’s dream: multi-faceted growth dynamics that will play out over the next decade or two.
It’s not quite that simple: emerging markets are not a straightforward investment, and there are several considerations investors need to be aware of before diving in.
“The number one challenge now really is geopolitics,” says Chetan Sehgal, portfolio manager of Templeton Emerging Markets Investment Trust (LON:TEM). He highlights the downturn that happened in emerging market investments, particularly in Russia, when the country invaded Ukraine in 2022.
Fluctuations in foreign exchange rates can hit emerging market economies hard, though the current trend towards de-dollarisation is playing in their favour.
Some emerging markets also have risks associated with corporate governance.
China, for example, is a market many seasoned investors approach with caution, despite being the world’s second-largest economy. “We are underweight China, because corporate governance in China is still not where it should be,” says Sehgal.
Should you invest in emerging markets?
With all of these factors considered, is now a good time to invest in emerging markets?
This depends on the emerging market in question. As above, all are distinct and offer different risks and opportunities. But the events of 2025 so far certainly amplify some of these opportunities, though at the cost of increased risks.
“A notable shift in 2025 has been the changing global perception of the US dollar,” says Wim Vandenhoeck, senior portfolio manager and co-head of Emerging Markets Debt, Invesco.
Donald Trump’s trade tariffs have disrupted the global status quo, and while some emerging markets have been slapped with heavy tariffs on exports to the US, the net effect has been to reduce appetite for US assets, and by extension the dollar, creating opportunities in other parts of the world.
Combined with the fact that many emerging markets have been overlooked during the age of US exceptionalism, this creates an attractive pricing dynamic.
“Emerging market assets have been largely ignored over the last decade, as US equities and the US dollar have outperformed, leading to cheap emerging market valuations,” said Vandenhoeck.
How to invest in emerging markets
If you are considering emerging markets, there are several ways you can add exposure to your portfolio.
You could choose a low-cost index fund that passively tracks an index. For example:
- iShares MSCI Emerging Markets ETF (LON:0JHF) which tracks the MSCI Emerging Markets Index,
- Vanguard FTSE Emerging Markets ETF (LON:0LMP) which tracks the FTSE Emerging Markets All Cap China A Inclusion Index.
For a more active approach, investors could select an emerging markets-focused investment trust.
One option is Templeton Emerging Markets Investment Trust. This trust seeks out resilient businesses in emerging markets in order to buy, in Sehgal’s words, “sustainable earning power at a discount”. It is a long-only fund.
Fidelity Emerging Markets Limited (LON:FEML) is an alternative option, and can invest up to 30% of its portfolio in short positions, typically when a business operates in a sector that is experiencing a structural decline and there is some sort of governance issue surrounding the company.
“We have a long list of red flags that we look for,” says Chris Tennant, portfolio manager at FEML. “If it’s got those two things, and it’s also an expensive company, that’s a big short position.”
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