Emerging markets

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An emerging market is a socioeconomic classification applied (with varying definitions) by economists and political scientists to countries that have economic activity stronger than a least developed country but generally weaker than a developed country. This may include newly industrialized countries, and those that may be developed markets in the future or were in the past.[1] A country may be classified as a "frontier market" if it no longer meets the criteria for an emerging market due to economic slowdown.[2] It may be a nation with social or business activity in the process of rapid growth and industrialization. The economies of China (excluding Hong Kong and Macau, as both are developed) and India are considered to be the largest.[3] According to The Economist, many people find the term outdated, but no new term has gained traction.[4] Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion.[5] The four largest emerging and developing economies by either nominal or PPP-adjusted GDP are the BRIC countries (Brazil, Russia, India and China). The next five largest markets are South Korea, Mexico, Indonesia, Turkey, and Saudi Arabia, although South Korea is not considered as an emerging market by most sources. Iran is also considered as an emerging market.[6]

The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional emerging market in the world.[7]

Terminology[edit]

   Developing countries that are neither part of the least developed countries, nor of the newly industrialized countries

In the 1970s, "less developed countries" (LDCs) was the common term for markets that were less "developed" (by objective or subjective measures) than the developed countries such as the United States, Western Europe, and Japan. These markets were supposed to provide greater potential for profit, but also more risk from various factors. This term was thought by some to be politically incorrect so the emerging market label was created. The term is misleading in that there is no guarantee that a country will move from "less developed" to "more developed"; although that is the general trend in the world, countries can also move from "more developed" to "less developed".

Originally brought into fashion in the 1980s by then World Bank economist Antoine Van Agtmael,[8] the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include Indonesia, Iran, some countries of Latin America, some countries in Southeast Asia, most countries in Eastern Europe, Russia, some countries in the Middle East, and parts of Africa. Emphasizing the fluid nature of the category, political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets".[9]

The research on emerging markets is diffused within management literature. While researchers including, George Haley, Vladimir Kvint, Hernando de Soto, Usha Haley, and several professors from Harvard Business School and Yale School of Management have described activity in countries such as India and China, how a market emerges is little understood.

In 1999, Dr. Kvint published this definition: "Emerging market country is a society transitioning from a dictatorship to a free-market-oriented-economy, with increasing economic freedom, gradual integration with the Global Marketplace and with other members of the GEM (Global Emerging Market), an expanding middle class, improving standards of living, social stability and tolerance, as well as an increase in cooperation with multilateral institutions"[10] In 2008 Emerging Economy Report,[11] the Center for Knowledge Societies defines Emerging Economies as those "regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization." It appears that emerging markets lie at the intersection of non-traditional user behavior, the rise of new user groups and community adoption of products and services, and innovations in product technologies and platforms.

More critical scholars have also studied key emerging markets like Mexico and Turkey. Thomas Marois (2012, 2) argues that financial imperatives have become much more significant and has developed the idea of 'emerging finance capitalism' - an era wherein the collective interests of financial capital principally shape the logical options and choices of government and state elites over and above those of labor and popular classes.[12]

Julien Vercueil[13] recently proposed an pragmatic definition of the "emerging economies", as distinguished from "emerging markets" coined by an approach heavily influenced by financial criteria. According to his definition, an emerging economy displays the following characteristics :

1. Intermediate income : its PPP per capita income is comprised between 10% and 75% of the average EU per capita income.

2. Catching-up growth : during at least the last decade, it has experienced a brisk economic growth that has narrowed the income gap with advanced economies.

3. Institutional transformations and economic opening : during the same period, it has undertaken profound institutional transformations which contributed to integrate it more deeply into the world economy. Hence, emerging economies appears to be a by-product of the current globalization.

At the beginning of the 2010s, more than 50 countries, representing 60% of the world's population and 45% of its GDP, matched these criteria.[14] Among them, the BRICS.

Newly industrialized countries as of 2013. This is an intermediate category between fully developed and developing.

The term "rapidly developing economies" is being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

In recent years, new terms have emerged to describe the largest developing countries such as BRIC that stands for Brazil, Russia, India, and China,[15] along with BRICET (BRIC + Eastern Europe and Turkey), BRICS (BRIC + South Africa), BRICM (BRIC + Mexico), Next Eleven (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam) and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).[16] These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms.

It is difficult to make an exact list of emerging (or developed) markets; the best guides tend to be investment information sources like ISI Emerging Markets and The Economist or market index makers (such as Morgan Stanley Capital International). These sources are well-informed, but the nature of investment information sources leads to two potential problems. One is an element of historicity; markets may be maintained in an index for continuity, even if the countries have since developed past the emerging market phase. Possible examples of this are South Korea[17] and Taiwan. A second is the simplification inherent in making an index; small countries, or countries with limited market liquidity are often not considered, with their larger neighbours considered an appropriate stand-in.

In an Opalesque.TV video, hedge fund manager Jonathan Binder discusses the current and future relevance of the term "emerging markets" in the financial world. Binder says that in the future investors will not necessarily think of the traditional classifications of "G10" (or G7) versus "emerging markets". Instead, people should look at the world as countries that are fiscally responsible and countries that are not. Whether that country is in Europe or in South America should make no difference, making the traditional "blocs" of categorization irrelevant.

The 10 Big Emerging Markets (BEM) economies are (alphabetically ordered): Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa and Turkey.[18] Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand are other major emerging markets.

Newly industrialized countries are emerging markets whose economies have not yet reached first world status but have, in a macroeconomic sense, outpaced their developing counterparts.

Individual investors can invest in emerging markets by buying into emerging markets or global funds. If they want to pick single stocks or make their own bets they can do it either through ADRs (American depositor Receipts - stocks of foreign companies that trade on US stock exchanges) or through exchange traded funds (exchange traded funds or ETFs hold basket of stocks). The exchange traded funds can be focused on a particular country (e.g., China, India) or region (e.g., Asia-Pacific, Latin America).

International Monetary Fund list[edit]

As of July 16, 2012, the International Monetary Fund (IMF) labels the following countries as "emerging economies":[19]

1 Also included in the group of "advanced economies" by the IMF.

Columbia University EMGP List[edit]

As of April 1, 2013, the Emerging Market Global Players (EMGP) project at Columbia University includes the following economies into the watch list:

The EMGP project, a collaborative effort led by the Vale Columbia Center (VCC), brings together researchers on FDI from leading institutions in emerging markets to produce annual reports identifying the top multinationals from each of a number of emerging markets. Each report is posted on this website as well as on the website of the partner institution in the relevant country. The information in the reports, including the rankings by foreign assets, will be of interest to researchers, bankers, investors, and the media, as well as to multinational firms in many countries.

FTSE list[edit]

The FTSE Group distinguishes between Advanced and Secondary Emerging markets on the basis of their national income and the development of their market infrastructure. The Advanced Emerging markets are classified as such because they are upper or lower middle income GNI countries with advanced market infrastructures or high income GNI countries with lesser developed market infrastructures.[21][22]

The Advanced Emerging markets are:

The Secondary Emerging markets include some low income, lower middle, upper middle and high income GNI countries with reasonable market infrastructures and significant size and some upper middle income GNI countries with lesser developed market infrastructures. The secondary emerging markets are:

MSCI list[edit]

As of June 2014, MSCI classified the following 23 countries as emerging markets:[25]

In 2013, Greece was added and Morocco was removed.[26]

S&P list[edit]

As of September 2014, Standard and Poor's classified the following 21 countries as emerging markets:[27]

The  United Arab Emirates,  Qatar, and  Jordan are currently under review for being upgraded to the status of emerging market by S&P.[29]

Dow Jones list[edit]

As of September 2014, Dow Jones classified the following 21 countries as emerging markets:[27]

Russell list[edit]

As of May 2013, Russell Investments considers the following countries as emerging markets:[30]

Frontier Strategy Group (F10) list[edit]

In July 2011, Frontier Strategy Group released the F-10, a list of the top 10 emerging markets Western multinational senior executives at Fortune 500 companies are tracking globally.[31]

The F-10 emerging market list is as follows:

BBVA Research[edit]

In November 2010, BBVA Research introduced a new economic concept, to identify a key emerging markets.[32] This classification is divided in two set of developing economies.

As of March 2014, the groupings are as follows:

EAGLEs (emerging and growth-leading economies): Expected Incremental GDP in the next 10 years to be larger than the average of the G7 economies, excluding the US.

NEST: Expected Incremental GDP in the next decade to be lower than the average of the G6 economies(G7 excluding the US) but higher than Italy’s.

Other Emerging Markets[33]

Emerging Markets Index[edit]

The Emerging Markets Index is a list of the top 65 cities in emerging markets. The following countries had cities featured on the list (as of 2008):

Summary list[edit]

If we organize the lists above into the following table, a few countries appear in every list (BRICS, Mexico, Turkey). Indonesia and Turkey are categorized with Mexico and Nigeria as part of the MINT economies. Egypt, since January 25, 2011, has been affected by protests and is now in a transitional period. Several countries also only appear on one list. These are Iran (Next 11); Israel (Columbia University EMGP); Hong Kong, Singapore, and Saudi Arabia (The Economist); and Sudan, Tunisia, Ukraine, Venezuela, and Vietnam (BBVA).

Emerging Markets by Each Group of Analysts
Country IMF BRICS + Next Eleven FTSE MSCI S&P Dow Jones Russell Columbia University EMGP
 Argentina Green tickY Green tickY Green tickY
 Bahrain
 Bangladesh Green tickY
 Brazil Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Bulgaria Green tickY
 Chile Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 China Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Colombia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Czech Republic Green tickY Green tickY Green tickY Green tickY Green tickY
 Egypt Green tickY Green tickY Green tickY Green tickY Green tickY
 Estonia Green tickY
 Greece Green tickY Green tickY Green tickY Green tickY
 Hungary Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 India Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Indonesia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Iran Green tickY
 Israel Green tickY
 Latvia Green tickY
 Lithuania Green tickY
 Malaysia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Mexico Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Morocco Green tickY Green tickY Green tickY Green tickY
 Nigeria Green tickY Green tickY
 Oman Green tickY
 Pakistan Green tickY Green tickY Green tickY
 Peru Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Philippines Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Poland Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Qatar Green tickY
 Romania Green tickY
 Russia Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Slovenia Green tickY
 South Africa Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 South Korea Green tickY Green tickY Green tickY Green tickY
 Taiwan Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Thailand Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Turkey Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY Green tickY
 Ukraine Green tickY
 United Arab Emirates Green tickY Green tickY
 Venezuela Green tickY
 Vietnam Green tickY

Global Growth Generators[edit]

"Global Growth Generators", or 3G (countries), is an alternative classification determined by Citigroup analysts as being countries with the most promising growth prospects for 2010-2050. These consist of Indonesia, Egypt, seven other emerging countries, and two countries not previously listed before, specifically Iraq and Mongolia. There has been disagreement about the reclassification of these countries, among others, for the purpose of acronym creation as was seen with the BRICS.

Neo emerging economies[edit]

In early 2014, Coface a French credit body said that BRICS is slowdown and 10 neo emerging economies growth at least 4 percent a year, a diversified economy without undue dependence on the sale of raw materials, and some capacity to absorb economic shocks and have to be matched by a financial system capable of supporting investment, but without raising risks of overheating.

The 10 neo emerging economies broke into 2 groups:

  • PPICS comprises Peru, Philippines, Indonesia, Colombia and Sri Lanka with sound business environment
  • The second comprises Kenya, Tanzania, Zambia, Bangladesh and Ethiopia with unsound business environment as same condition with BRIC at 2001

Compare to BRIC(S) in 2001 and current 10 neo emerging economies, the latest are better with 2.8 percent lower of BRIC-2001 inflation rate and only 40 percent of publc debt ratio for the neo-10 and 54 percent for the BRICS at 2001.[34]

25 Largest Emerging and Developing Markets by GDP in 2014[edit]

The following two tables list the twenty-five largest emerging and developing countries by GDP (Nominal) and GDP (PPP) in 2014 respectively.

List of the 25 largest emerging and developing
markets by GDP (nominal) in 2014
[35]
List of the 25 largest emerging and developing
markets by GDP (PPP) in 2014
[36]
Rank World
Rank
Country GDP (Nominal)
(Billions of US$)
1 2  China 10,355
2 7  Brazil 2,244
3 9  Russia 2,057
4 10  India 2,045
5 13  South Korea 1,449
6 15  Mexico 1,296
7 17  Indonesia 856
8 18  Turkey 813
9 19  Saudi Arabia 778
10 21  Nigeria 594
11 23  Poland 552
12 24  Argentina 536
13 27  Taiwan 505
14 29  United Arab Emirates 416
15 30  Iran 403
16 31  Colombia 400
17 32  Thailand 380
18 34  South Africa 341
19 35  Malaysia 337
20 36  Singapore 307
21 37  Israel 305
22 38  Hong Kong 293
23 39  Philippines 290
24 40  Egypt 285
25 42  Chile 264
Rank World
Rank
Country GDP (PPP)
(Billions of US$)
1 1  China 17,632
2 3  India 7,277
3 6  Russia 3,559
4 7  Brazil 3,073
5 9  Indonesia 2,554
6 11  Mexico 2,143
7 13  South Korea 1,790
8 14  Saudi Arabia 1,652
9 17  Turkey 1,512
10 18  Iran 1,284
11 20  Nigeria 1,058
12 21  Taiwan 1,022
13 22  Thailand 990
14 23  Egypt 945
15 24  Poland 941
16 25  Argentina 927
17 26  Pakistan 884
18 28  Malaysia 747
19 29  Philippines 695
20 30  South Africa 683
21 31  Colombia 642
22 32  United Arab Emirates 605
23 33  Algeria 552
24 34  Venezuela 546
25 35  Bangladesh 536

See also[edit]

References[edit]

  1. ^ "Greece First Developed Market Cut to Emerging at MSCI - Bloomberg". 
  2. ^ MSCI will downgrade Argentina to frontier market - MarketWatch MarketWatch
  3. ^ "Emerging Economies and the Transformation of International Business" By Subhash Chandra Jain. Edward Elgar Publishing, 2006 p.384
  4. ^ "Acronyms BRIC out all over". The Economist (The Economist). September 18, 2008. Retrieved April 14, 2011. 
  5. ^ http://www.business-standard.com/india/news/brics-is-passe-time-now-for-%5C3g%5C-citi/126725/on
  6. ^ "Iran-US Rapprochement: Historic Opportunities Beckon". -Business Monitor International. January 10, 2014. Archived from the original on March 23, 2014. 
  7. ^ "China-ASEAN FTA prompts growing trade among border cities". channelnewsasia.com (Singapore: MediaCorp). January 5, 2010. Retrieved April 14, 2011. 
  8. ^ FT.com / Columnists / John Authers - The Long View: How adventurous are emerging markets?
  9. ^ [1]
  10. ^ Kvint, Vladimir (2009). The Global Emerging Market: Strategic Management and Economics. New York, London: Routledge. 
  11. ^ Emerging Economy Report
  12. ^ Marois, Thomas (2012). States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey. Cheltenham, Gloucestershire, UK: Edward Elgar. 
  13. ^ Vercueil, Julien : "Les pays émergents. Brésil - Russie - Inde - Chine... Mutations économiques et nouveaux défis " (Emerging Countries. Brazil - Russia - India - China.. Economic change and new challenges", in french). Paris : Bréal, 3rd Edition, 2012, 232 p.
  14. ^ Ibid., p. 10
  15. ^ Five Years of China’s WTO Membership. EU and US Perspectives on China’s Compliance with Transparency Commitments and the Transitional Review Mechanism, Legal Issues of Economic Integration, Kluwer Law International, Volume 33, Number 3, pp. 263-304, 2006. by Paolo Farah
  16. ^ "After BRICs, look to CIVETS for growth - HSBC CEO"
  17. ^ Classified by FTSE as a developed market.
  18. ^ Yale University Library: Emerging Markets - The Big Ten Countries
  19. ^ http://www.imf.org/external/pubs/ft/weo/2012/update/02/index.htm
  20. ^ a b excluding Taiwan.
  21. ^ See FTSE Country Classification, September 2010
  22. ^ http://www.ftse.com/Research_and_Publications/FTSE_Glossary.jsp
  23. ^ a b Possible promotion to Developed.
  24. ^ http://thailand-business-news.com/news/36720-stock-exchange-of-thailand-opens-up-above-1200-pts-highest-in-almost-16-years#.T3BxszHxq8A
  25. ^ MSCI Emerging markets.
  26. ^ http://www.msci.com/products/indices/market_classification.html
  27. ^ a b http://www.spindices.com/documents/index-news-and-announcements/20131030-spdji-country-classification-results.pdf
  28. ^ "Colombia for emerging mkt status". S&P. July 12, 2011. 
  29. ^ "S&P reviewing UAE, Qatar, Jordan for emerging mkt status". Reuters. July 12, 2011. 
  30. ^ "Russell construction methodology". 
  31. ^ http://blog.frontierstrategygroup.com/2011/07/keeping-an-eye-on-latin-america-you%E2%80%99re-in-good-company
  32. ^ http://www.bbvaresearch.com/KETD/ketd/Descargas?pais=EAGL&tematica=/MACR/RVSE/&canal=web&tipocontenido=AFON&idioma=ING&pdf=/fbin/mult/120221_EAGLEs_Outlook_Annual_Report_2012_tcm348-287658.pdf&ididoc=en&tipopublicacion=Eagles
  33. ^ [2] EAGLEs_Outlook_Annual_Report_2012 (20 February 2012), page 9
  34. ^ "As Brics Economies Grow Up, 10 Upstarts Emerge: Report". March 26, 2014. 
  35. ^ [3] IMF nominal GDP Data (October 2014)
  36. ^ [4] IMF GDP (PPP) Data (October 2014)

Sources[edit]

External links[edit]