According to Wikipedia, An emerging market “is a country that has some characteristics of a developed market, but does not meet standards to be a developed market.”
Emerging markets have been described in many ways:
- In 1999, Dr. Vladimir Kvint, a renowned economist and strategist, defined an emerging market country as "a society transitioning from a dictatorship to a free-market-oriented-economy, with increasing economic freedom, gradual integration with the Global Marketplace and with other members of the GEM (Global Emerging Market), an expanding middle class, improving standards of living, social stability and tolerance, as well as an increase in cooperation with multilateral institutions".
- The Center for Knowledge Societies (CKS Consulting Pvt. Ltd.) a design and innovation consultancy, in its 2008 emerging economy report described emerging markets as "regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization."
The common denominator in both definitions is that emerging markets are rapidly expanding markets that are not fully developed. The ten largest emerging markets in the world are: Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey.
As at 2008, based on their Gross Domestic Product (GDP), emerging markets were listed among the top 10 largest economics in the world.
The essential characteristics of emerging markets are:
- Low income
- Weak Infrastructure
- Under-developed Capital markets
- Populations are youthful and growing
- Technology is under-developed
- Markets are rapidly changing
- Weak distribution channels
These high populations have also led to a high demand of technological products and services from more developed markets. Some of these products include smart phones, laptops, iPads and other similar tech gadgets.
A Credit Suisse Group report, which covers 2008 – 2013, shows emerging markets as one of the highest consumers of smartphones from China's smartphone sector.
The youthful nature of the populations in these emerging markets also makes them a high participator in the social media industry.
As at 2013, the number of social network users from some selected emerging markets had exceeded the social network users from the United States of America.
Emerging markets rank among the highest when considering the number of Facebook users in their countries; the reasons for this could be their youthfulness and hunger for technological innovations.
As can be imagined, this has made emerging markets the sole target of several Ad and marketing campaigns. There has also been a large flow of direct foreign investment into these regions, as investors looked for ways to tap into the potential of these readily available markets.
Between 2002 and 2010, these direct foreign investments were in an excess of over a 200 billion dollars, spread among several emerging markets.
Between 2005 and 2013, emerging markets have consistently out-performed developed economies in terms of GDP growth. Even the 2008 financial crisis which had global stock markets taking heavy losses; emerging markets still came out ahead.
Emerging Market Currencies
Emerging markets offer many forms of investment opportunities, the common approach is to invest in growing companies within these countries and take advantage of the available demand for goods and services. Another profitable but risky alternative is to trade the currencies of these emerging markets.
Below are some of the common emerging market currencies available for trading:
- South African RAND (ZAR)
- Russian Ruble (RUB)
- Turkish Lira (TRY)
Currencies from these emerging markets are very unique, in the sense that they are prone to high, unexpected fluctuations in prices. This high volatility is as a result of their "developing" state; because emerging markets are viewed as still developing, any change in their political standing has a great impact on their currencies.
An example of this was when international sanctions were imposed on Russia by the European Union, the Russian Ruble lost a great deal of value within a very short time frame.
By the end of the year, the Russian Ruble had declined massively.
Now, depending on which side of the market an investor is in, such an investor can make a lot of money from these large market swings or incur a great amount of loss.
Because of the high political and economical risks associated with emerging markets, their currency markets usually experience illiquidity, and have a very high bid-ask spreads. So it goes without saying that these markets have to be traded cautiously, and with minimum risk.
General growth in emerging markets have declined significantly, and this has been as a result of the low commodity prices. Commodities such as crude oil, sugar, cocoa, gold, copper, silver and platinum have experienced major decline in their prices; and since most emerging markets are commodity exporters, the low prices have had a negative effect.
So as a trader contemplating trading these emerging market currencies, it is important to understand their relationship with commodity prices. As commodity prices go up, it increases the earning power of these emerging nations, who are actively involved in commodity exporting. And if commodity prices go down, it has an opposite effect, reducing the overall revenue of the emerging nations.
There is a lot to learn about investing in emerging nations, and while there is a big profit potential, it is also necessary to understand that the political and economic volatility of these nations can drastically increase an investor's financial exposure. The best way to invest in these markets are cautiously, and with professional expertise.
I hope you have enjoyed the article, and I gladly welcome comments and observations.