Emerging markets, also known as emerging economies or developing countries, are nations that are investing in more productive capacity. They are moving away from their traditional economies that have relied on agriculture and the export of raw materials. Leaders of developing countries want to create a better quality of life for their people. They are rapidly industrialising and adopting a free market or mixed economy.
There are many ways to take advantage of the high growth rates and opportunities in emerging markets. The best is to pick an emerging market fund. Many funds either follow or try to outperform the Morgan Stanley Capital Index (MSCI) that saves your time as you don’t have to research on foreign companies and economic policies. It reduces risk by diversifying your investments into a basket of emerging markets, instead of just one. Harsha Vardhan, deputy director general at the World Trade Organisation (WTO) said,”The greater need to rely on the multilateral trading system arises due to new emerging centres of economic importance in the world.”
Not all emerging markets are equally good investments. Since the 2008 financial crisis, some countries took advantage of the rising prices of commodities to grow their economies. They didn’t invest in infrastructure. Instead, they spent the extra revenue on subsidies and the creation of government jobs. As a result, their economies grew quickly, their people bought a lot of imported goods, and inflation soon became a problem. These countries included Brazil, Hungary, Malaysia, Russia, South Africa, Turkey, and Vietnam. Since their residents didn’t save, there wasn’t a lot of local money for banks to lend to help businesses grow. The governments attracted foreign direct investment by keeping the interest rates low. Although this increased inflation, it was worth it. In return, the countries received significant economic growth. “The major challenge we face today is how to manage the transition from the present period that combines these immense changes in the international scene to a period that will bring greater synergistic and supportive business means across multiple nations. This will require a multilateral trading system” said Harsha Vardhan.
The label of an ’emerging’ market applies less and less by the day as its influence grows. Crucially, emerging markets will help the global economy to grow. Robust growth and development can eventually lead to developing economies overtaking those which are considered to be more advanced.