Emerging market economies refers to the economy of developing nations that are becoming more engaged with the international markets while it is growing. Countries that are classified as developing market economies are those with a few, but not all, of the traits of a developed economy.
Kavan Choksi– what are the traits of emerging markets, and can they be relied upon?
Kavan Choksi is an esteemed business management, investor, and wealth consultant with expertise in finance and economics. According to him, the salient traits of an emerging economy might include a high per capita income, strong growth in the economy, liquid equity, debt markets, foreign investment accessibility, and a regulatory system that can be relied upon.
What are the emerging markets in the world?
He states that as the emerging market economy becomes more developed, it gets integrated with the economy of the globe. This implies that it might have more liquidity in the equity and debt markets, a higher volume of trade, and direct foreign investment, and it can be a place for the development of modern regulatory and financial institutions. At present, some examples of emerging economies in the market are Saudi Arabia, China, India, Mexico, Brazil, Pakistan, and Russia.
In other words, an emerging market economy is one that is currently changing from a less developed, low-income, and, often, pre-industrial market economy towards an industrial, modern economy with a higher or a better standard of living.
How do they function?
Investors look for emerging markets for the potential to generate high returns because these economies generally experience faster growth when they are measured by the GDP or gross domestic product. However, investors should note that along with a higher return for their investments, these markets also bring with them higher risks.
Understanding these risks for investments
The risks of an emerging economy can include political instability, problems in the domestic infrastructure, money volatility, and illiquid equity because many big companies might be run by the state or privately. The local stock exchange might need to provide liquid markets to foreign investors.
Emerging economies generally do not have a market as highly developed as their developed peers in the world. The same holds true for regulatory institutions as well. When it comes to market efficiency and stringent standards in securities regulation and accounting, they generally are different from advanced global economies in the world like Japan, Europe, and the USA.
The signs of development and progress in an emerging market
Emerging markets have a physical, financial structure like a stock exchange, banks, and a currency that is unified. A significant aspect of an emerging economy is that with time they embrace institutions and reforms like their developed modern peers promoting economic growth in the process.
Business and finance expert Kavan Choksi adds that emerging markets gradually shift from activities that are centered on the extraction of resources and agriculture towards manufacturing and industrial activities. Their governments generally follow deliberate trade and industrial strategies for promoting industrialization and economic growth in the region.
