How to Identify Emerging and Frontier Markets
Emerging markets run the gamut. Some are Middle Eastern. Others are European nations that weren’t aligned with the Soviet Union but that were never exactly poor, either. Others may be found among long-established nations in South America. Some are countries that were Communist but that are now embracing capitalism. And some are nations in that vast Third World category that are now meeting or surpassing more established nations in terms of economic growth.
Emerging markets don’t have to be hours away by plane. Every country has lesser-developed regions, and every city has lesser-developed neighborhoods. And you can invest in these areas without taking on the currency risk or political risk of investing in other countries by opening an account at a community deposit financial institution, which is a bank that lends money for mortgages and businesses in a specific neighborhood. Or you can buy stock in real estate and banking companies that specialize in community redevelopment.
To know what an emerging market is, you need to understand developed markets. In general, a developed market is one of the 34 nations that belong to the Organisation for Economic Cooperation and Development (OECD). These nations are usually thought of as fully developed countries, considering that OECD membership is for countries that have demonstrated a commitment to democracy and a market economy, at least as defined by the countries in North America and Western Europe that set up the group.
Emerging markets aren’t quite fully developed but are making efforts toward developing further. These are countries that have some infrastructure, some stable government systems, strong human capital, and success with economic growth.
One of the simplest ways to determine whether a market is emerging is to see whether it appears in a financial index that tracks emerging markets, such as the MSCI Emerging Markets Index or the MSCI Frontier Markets Index. You can check out the website of MSCI Barra, one of the larger financial index and data firms, and let them do the classification work for you.