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Countries classified as emerging markets are those with some, but not all, of the characteristics of a developed market, this includes markets that may become developed markets in the future or were in the past.
As an emerging market economy progresses it typically becomes more integrated with the global economy, as shown by increased liquidity in local debt and equity markets, increased trade volume and foreign direct investment, and the domestic development of modern financial and regulatory institutions.
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How emerging markets are classified
Various sources list countries this way, although these emerging markets are classified in different ways by different observers, such as the IMF. Levels of income, quality of financial systems, and growth rates are all popular criteria, but the exact list of emerging market economies can vary. A few countries appear in every list, while there are no commonly agreed upon parameters on which the countries can be classified as emerging markets, several firms have developed detailed methodologies to identify the top performing economies every year.
Investing in emerging markets
Investing too late in an emerging market is the biggest risk of this type of investment, by the time that most people became aware of the growth of the economy, it is already well on its way to becoming an economic powerhouse. At the height of an emerging market’s popularity, investing can be very costly. In addition, the growth of emerging markets isn’t steady, and they can be very volatile, so the timing of an investment is very important.
When basic caution is exercised, the rewards of investing in an emerging market can outweigh the risks. Despite their volatility, the most growth and the highest-returning stocks are going to be found in the fastest-growing economies. The secret to adding growth from emerging markets to your portfolio is to limit yourself to reasonable risks.
How emerging markets are changing
Emerging markets have changed considerably in the decade leading to 2020. They lag behind more developed economies in terms of their financial sectors. Indeed, many young economies are typified by historically low levels of financial inclusion. In recent years, many governments in emerging markets have liberalized a range of sectors and introduced a host of reforms, including regulations surrounding financial services.
Globally, foreign ownership restrictions have been relaxed across a host of sectors, including real estate, banking and education, and many governments have targeted improvements in the ease of doing business. This allows for greater foreign participation and often presents an opportunity for partnerships with domestic companies.
Technological development is also enabling a transformation of emerging markets. In addition to facilitating entrepreneurship and innovation, increasing mobile penetration and app-based payment services have widened financial inclusion, which in turn benefits more sectors than just financial services.
Brazil
Is the largest country in both South America and Latin America with over 211 million people, Brazil is the world’s fifth-largest country by area and the sixth most populous.
The COVID-19 pandemic exposed Brazil to an unprecedented health and economic challenge, by jeopardizing years of progress in poverty reduction and human capital accumulation. While the poverty rate temporarily fell to 21% in 2020 (from 29% in 2019) but it is expected to rise again this year with the end of the temporary assistance and the weak labor market recovery due to the second wave of the pandemic.
Vietnam
Vietnam is a country in Southeast Asia. Located at the eastern edge of the Indochinese Peninsula, Vietnam is divided into 58 provinces and five municipalities, with a population of over 96 million inhabitants as of 2019, making it the 16th most populous country in the world. Vietnam shares its land borders with China to the north, and Laos and Cambodia to the west. It shares its maritime borders with Thailand through the Gulf of Thailand, and the Philippines, Indonesia and Malaysia through the South China Sea.
Despite COVID-19, Vietnam’s economy has remained resilient, expanding by 2.9% in 2020 (one of the highest growth rates in the world) and growth is projected to be 6.5% in 2021, thanks to strong economic fundamentals, decisive containment measures and well-targeted government support, according to the IMF’s latest annual assessment of the country’s economy.
Philippines
The Philippines is an archipelagic country in Southeast Asia. It is situated in the western Pacific Ocean and consists of about 7,640 islands. Philippines is bounded by the South China Sea to the west, the Philippine Sea to the east, and the Celebes Sea to the southwest, and shares maritime borders with Taiwan to the north, Japan to the northeast, Palau to the east and southeast, Indonesia to the south, Malaysia, and Brunei to the southwest, Vietnam to the west, and China to the northwest.
While the Philippines economy is still expected to show a growth rebound in 2021, the near-term outlook for the Philippines economy has been dampened by the sharply rising wave of new COVID-19 cases since mid-March 2021. This is expected to constrain the pace of economic recovery in the near-term, as strict pandemic control measures have been imposed in Metro Manila and other surrounding areas badly impacted by the latest surge in pandemic cases. Vaccine rollout in the Philippines has also been constrained by lack of sufficient supplies of imports.
Peru
Peru is a country in western South America. It is bordered in the north by Ecuador and Colombia, in the east by Brazil, in the southeast by Bolivia, in the south by Chile, and in the south and west by the Pacific Ocean. Peru is the 19th largest country in the world, and the third largest in South America.
In response to the devastating impact from the pandemic, the government launched a global program of economic compensation and aid to protect the vulnerable population and support businesses. The economy is now expected to stabilize at rates close to those recorded in the pre-crisis period. The challenge for the Peruvian economy lies in accelerating GDP growth, promoting shared prosperity, and providing citizens with protection against shocks, both generalized and individual.
Serviap Global can help you enter emerging markets
At Serviap Global we have plenty of experience working in emerging markets and we sincerely believe in their potential. We are experts in employer of record (EOR) hiring, which allows companies to swiftly and efficiently enter new markets without having to establish a legal entity.
We started in Mexico, expanded regionally throughout the Americas and now assist with hiring in over 100 countries spread around the world. If you’re interested in any of the emerging markets mentioned in this piece, we could help you.
Contact us to see where we operate and how we can help you enter one of these emerging markets.