An emerging market is an economy that is becoming wealthier and more advanced, but is not yet classed as "developed".
“Emerging market” is a very broad term used to describe countries that are becoming wealthier and more economically advanced, but are not yet classed as developed economies. It was originally coined by Antoine van Agtmael, then an economist at the World Bank, in 1981 as a way of drawing investors’ attention to a set of promising fast-growing stockmarkets such as Brazil, India and South Korea, and was quickly embraced by the investment industry.
The definition of an emerging market is not solely related to a country’s level of economic development. Index compilers also take into account the size and liquidity of local financial markets, or issues of accessibility, transparency and stability for foreign investors. Some of these criteria may be subjective, and firms may come to different conclusions.
For example, MSCI includes 26 emerging markets in its main emerging-market index. Most are middle and low-income countries, such as China, India and Brazil. But the list also includes wealthier countries, such as South Korea (which rival index provider FTSE classifies as a developed market) and Taiwan, which are as wealthy as many European developed countries in terms of real GDP per head.
Frontier markets are developing economies that have not yet reached emerging status. MSCI includes 28 countries in its frontier index. While some of these countries are much poorer than those in the emerging markets index, others such as Vietnam are classed as frontier markets only because of restrictions on foreign investors.
Wealthy Hong Kong and Singapore are classed as developed by all providers, although the performance of their markets is often closely linked to the performance of their emerging neighbours. Conversely, the oil-rich Gulf states are all classed as emerging or frontier due to lower size or liquidity in their markets.