Market Categories and the Countries in Them - dummies

Market Categories and the Countries in Them

By Ann C. Logue

The global marketplace is divided into three types of market: developed, emerging, and frontier. The investable countries of the world are slotted into one of these categories. However, only 75 of the 192 countries of the United Nations are classified as developed or developing. The other 117 nations matter to the world but not necessarily to investors because they’re really small, really poor, or just not open to outside investors.

The list of emerging markets isn’t fixed. A country may well move from problems and poverty to frontier- and emerging-market status. It may take a decade or two — it may even take a revolution or the death of a dictator — but it could happen. Don’t you want to be there when it does?

Developed markets

In general, a developed market is one of the 33 nations that belong to the Organization for Economic Cooperation and Development, or OECD, and shown in the following list. These nations are usually thought of as fully developed countries that have demonstrated a commitment to democracy and a market economy as defined by the countries in North America and Western Europe that set the group up. The participants agree to collect and share information about their economies in order to develop new policies for themselves and to assist in the development of the rest of the world.

Australia Hungary Poland
Austria Iceland Portugal
Belgium Ireland Slovak Republic
Canada Israel Slovenia
Chile Italy South Korea
Czech Republic Japan Spain
Denmark Luxembourg Sweden
Finland Mexico Switzerland
France Netherlands Turkey
Germany New Zealand United Kingdom
Greece Norway United States

The OECD’s Web site is a great research tool with a wealth of information on the economic state of the developed world.

Emerging markets

Emerging markets aren’t quite fully developed but are making efforts toward developing further. These countries have some infrastructure, some stable government systems, strong human capital, and success with economic growth.

To be truly emerging, a country’s economic growth should be expanding beyond its borders. It should be producing enough goods that it can export products to other countries, becoming an active participant in global trade. It should have people who can take the jobs that local companies are creating. And it should be open to capital and investments from outside the country, whether by individuals, financial institutions, or multinational corporations.

An emerging market needs to have a stock market so that investors can buy and sell securities.

One of the simplest ways to tell whether a market is emerging is to see if it appears in a financial index that tracks emerging markets, such as the MSCI Emerging Markets or the MSCI Frontier Markets index. MSCI Barra, one of the larger financial index and data firms, posts lists of emerging countries, which include those in the following list:

Brazil India Poland
Chile Indonesia Russia
China Malaysia South Africa
Colombia Mexico South Korea
Czech Republic Morocco Taiwan
Egypt Peru Thailand
Hungary Philippines Turkey

Frontier markets

Frontier markets are a subset of emerging markets. These countries are in the earliest stage of development but do have a stock market and investable securities. Growth can be explosive, and the profit potential is enormous. That means the risk is high, too. If they have potential and if they have securities that investors can trade, though, they’re going to attract attention. These markets have exciting potential and are worth considering if you can handle the risk.

The countries in the following list are classified as frontier markets:

Argentina Kenya Saudi Arabia
Bahrain Kuwait Serbia
Botswana Lebanon Slovenia
Bulgaria Lithuania Sri Lanka
Croatia Mauritius Trinidad and Tobago
Estonia Nigeria Tunisia
Ghana Oman Ukraine
Jamaica Pakistan United Arab Emirates
Jordan Qatar Vietnam
Kazakhstan Romania