Business, Legal & Accounting Glossary
Emerging market, or emerging economy, is market with a relatively short and uncertain history of open market relations and foreign investment. An emerging market is characteristic of a country or state that has previously had a centrally planned and isolated economy. In emerging market nations such economic conditions were generally due to long-standing one-party political and socioeconomic systems. Depending on its nature and commitment to becoming a free-market economy, one emerging market may be different from another. Thus for example, after the collapse of a communist regime, Russia became a notable emerging market. Another example of an emerging market may be a developing nation, emerging from poverty or economic sanctions. The stock markets of any given emerging market tend to be more volatile than more established markets.
Emerging markets is a term that is used to illustrate the process of rapid economic growth. The process of rapid industrialization is depicted by the term emerging markets. Emerging markets are synonymous to emerging economies. To be more specific, Emerging markets are termed as Emerging Market Economy (EME).
Emerging Market Economy (EME) was invented in the year 1981 by Antoine W. Van Agtmael, who belonged to the International Finance Corporation of the World Bank. He defined EME as an economy that comprises of low to middle per capita income. Census speak that 80% of total global countries belong to the Emerging Market Economy category.
Countries that fall in the category of Emerging Market Economy are considered as emerging due to their rapid developments and reforms. The countries that fall in the category of Emerging Market Economy take special steps to open up their markets and “emerge” as globalize economies. Emerging Market Economies are fast-growing economies.
One of the significant characteristics of emerging economies is that they are transitional, which means the economies are constantly in the process of transforming from closed to an open market economy. As an emerging market, the economy of any country embarks on several economic reform programs. These reform programs, on the other hand, lead to stronger and steady economic performance levels. Economic reforms programs are also responsible for bringing transparency and efficiency in the capital market.
Another characteristic involves reform in exchange rate system. Improvement in exchange rate system reduces flow domestic capital to abroad. World Bank and International Monetary Fund aid the Emerging Market Economies. The most significant characteristics of emerging economies are that there is a considerable increase in local and foreign investment on both portfolio and direct front.
Emerging Market Economies provides exposure to foreign investors or developed-economy businesses due to their expansionary policies. Emerging markets lead to a rise in overall production levels in the long run as the level of gross domestic product increases and there is a reduction in the gap between the emerged and emerging worlds. Most of the investors believe that the bigger the risk you take the bigger the reward can be obtained. Hence, emerging market investments have nowadays become a standard and regular practice among investors who aim to expand while taking some calculated risk.
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This glossary post was last updated: 2nd April, 2020