As one of Wall Street’s favorite buzzwords, the term “emerging market” gets thrown around quite a bit. Broadly defined, an emerging market is a country whose business and financial infrastructure is somewhere between being underdeveloped (like, say, Kenya) and highly complex (like the United States). Within that spectrum, those nations whose economies are experiencing strong or rapid growth toward a more globalized and technical form are generally labeled as emerging markets.
That is an extremely broad metric. And from a cursory examination of various emerging market funds, it can also be highly arbitrary. Some indexes include certain countries that others do not, only adding to the uncertainty investors can find themselves feeling when investigating emerging market investments.
While there are differences in opinion on what hard numbers quantify an emerging market, there are particular figures most indexes look at when determining whether a particular nation qualifies. Those figures typically include statistics on the nation's economy, like Gross National Income (GNI) and Gross Domestic Product (GDP) as well as figures on the strength of the country’s equity market like the average value and market cap of their businesses.
Again, these figures will vary from index to index. However, for reference, let’s take a look at one of the most widely tracked emerging markets indexes, equity provider MSCI. You can get a full picture by reading MSCI’s full rundown of its market classification standards. For now, we’ll just cover the basics
For starters, the MSCI Emerging Markets Index index includes 25 nations across four continents.
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