UNIT 2- Emerging markets Flashcards
The term “emerging market economy”
Was first used in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank.
What are emerging markets?
No agreement among scholars, many different definitions.
- research on emerging markets is diffused
- how a market emerges is little understood
Some definitions of emerging markets:
- “An emerging market is a country that has some characteristics of a developed market but does not satisfy standards to be termed a developed market.”
- “Emerging markets are economies of countries that are in the progress of becoming a developed country and typically are moving toward mixed or free markets.
- “Emerging market countries are those that are striving to become advanced countries and are generally on a more economically disciplined track to become more sophisticated - including increased fiscal transparency, focus on production, developing regulatory bodies and exchanges, and acceptance of outside investment.”
- Kvint (2009) “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 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”
- The Center for Knowledge Societies (2008) defines Emerging Economies as those “regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization”.
- More critical scholars like Marois (2012) 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.
Pragmatic definitions –> For Vercueil (2016) 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 strong 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.
- At the beginning of this decade, more than 50 countries, representing 60% of the world’s population and 45% of its GDP, matched these criteria.
- Among them, the BRICs (Brazil, Russia, India, China).
Characteristics of emerging markets
1) Emerging markets typically have a lower-to-middle per capita income- it is generally lower than other more developed countries
2) Typically have some sort of regulatory body as well as a market exchange for investment and a common currency.
3) Often have a higher rate of growth compared to developed countries, but are often plagued by higher sociopolitical instability and volatility.
4) Many have military unease and social upheaval that create high volatility
5) Volatility is a major facet of emerging markets - with things like natural disasters or price shocks affecting growth and the economy.
6) Often vulnerable to swings in commodities (like oil or food goods) or other currencies- especially the USD
7) Generally have lower industrial production compared to advanced economies like the US
8) Often have immature capital markets that pose some risks to investors
9) Because their markets are still developing, emerging market
economies don’t often have a lot of information about traded companies on their exchanges, and selling debt (like bonds) is often more challenging.–> However, outside investors who are able to research these companies are often rewarded with higher-than-normal returns, making emerging markets a risky yet possibly lucrative investment.
The BRIC countries
The four largest emerging economies
- Brazil
- Russia
- India
- China
Why are large countries like China or Russia still considered emerging markets?
- Although some countries like China and India have high production and industry, other factors like low per capita income or a heavy focus on exports, qualify them as emerging markets.
BRICET
BRIC + Eastern Europe and Turkey
BRICS
BRIC + South Africa
BRICM
BRIC + Mexico
MINT
Mexico, Indonesia, Nigeria and Turkey
Next eleven
Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey, and Vietnam
CIVETS
Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa
The MSCI Emerging Markets Index (USD)
The MSCI Emerging Markets Index captures large and mid cap representations across 24 Emerging Markets (EM) countries. With 1,437 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
The 24 countries that qualify as emerging markets according to the MSCI index:
Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.
