In short: Emerging markets are economies with some features of developed markets but not all of them, such as India, Brazil and Mexico. They tend to grow faster and carry more risk. Index providers decide which countries qualify, using income, market access and other criteria. Their growth does not always translate into investor returns.
What the term means
Antoine van Agtmael, then an economist at the World Bank, coined the term in 1981 as a more appealing replacement for “less developed countries”. It describes a market with some characteristics of a developed market that does not fully meet its standards. Typical features include lower incomes than rich countries, faster growth, and financial and political institutions still maturing.
The category is broad and not uniform. It places China, a major global power, alongside far smaller economies with very different industries, politics and problems. A statement about “emerging markets” is often true of some members and false of others.
Who decides, and how
No single authority sets the list. Index firms such as MSCI and FTSE sort countries into developed, emerging and frontier groups, and these labels affect where large amounts of investment money go. MSCI uses three tests: economic development, the size and liquidity of the market, and how accessible it is to international institutional investors. It reviews them every June, so reclassification does happen. In its 2026 review, MSCI confirmed that Greece will move from emerging to developed status in May 2027, and warned that Indonesia could face a consultation on moving down to frontier.
| Group | Examples | Typical traits |
|---|---|---|
| Developed | US, Japan, Germany, UK | High income, deep markets, stable institutions |
| Emerging | Brazil, China, India, Mexico, South Africa | Growth potential, more volatility, some limits on access |
| Frontier | Smaller, less accessible markets | Thin trading, higher risk |
Providers can disagree. South Korea is classed as developed by FTSE and emerging by MSCI, whose 2026 review again left it unchanged, citing limits on foreign investors’ access. That explains why two funds with similar names can behave differently. Russia shows that the category can change abruptly: it was removed from major indexes in 2022 after sanctions made its market effectively uninvestable.
Why they matter
Emerging economies have become a large part of the world, accounting for most of its population and much of its growth. In April 2026, the IMF projected growth of 3.9% for emerging market and developing economies, according to reporting by Invezz, down from 4.2% in its January forecast.
Their importance reaches well beyond their own borders. They supply commodities and manufactured goods and are growing sources of consumer demand, which links them to what causes inflation elsewhere. Global events such as US rate changes can in turn have a strong effect on them.
The main risks
Currency swings. A falling local currency can erase gains for foreign investors and raise the cost of imports. Many governments and firms borrow in dollars, so a strong dollar can make those debts harder to service.
Sensitivity to US interest rates. When US rates rise, as explained in how interest rates work, capital tends to flow back toward safer assets, sometimes abruptly.
Politics and governance. Elections, sudden policy changes, state intervention, weak legal protection and sanctions can all matter. As one common description has it, these are countries where politics matters at least as much as economics to the markets.
Concentration. Index weights are heavily skewed toward a few large economies, so a fund’s results can hinge on a small number of countries. Check the country breakdown before you buy.
Fast growth does not guarantee good returns
A surprising and important point for investors is that a fast-growing economy is not automatically a good investment. High growth may already be reflected in share prices. New share issues may dilute existing holders, and companies listed on the local market may have little to do with the part of the economy that is growing. Many of the largest beneficiaries of a country’s expansion are private or foreign companies.
Valuations and currency moves often account for more of the short-term results than GDP. This gap between economic growth and investment returns is a reason to be wary of simple stories, an idea also explored in second-order thinking.
How investors typically gain exposure
Broad index funds offer the simplest route, covering many countries at low cost. Many global funds already include an allocation, so check before adding more. Active funds and single-country funds exist too, with higher costs and greater concentration. Be careful of hidden exposure as well: large US and European companies may earn a big share of their revenue in those countries.
How much to hold depends on your goals and tolerance for swings. Global market weights provide a common neutral reference point, and those wanting more should understand that they are taking on more risk. This topic fits into the wider picture in how the economy works. For a closer look at downturns, see what a recession is.
Frequently asked questions
What are the BRICS countries?
BRICS originally referred to Brazil, Russia, India, China and South Africa, a grouping built on a phrase coined by a Goldman Sachs economist. It has since expanded to include further members and has become a political forum. It overlaps with the emerging market category but is not the same thing as any investment index.
Is China still an emerging market?
Major index providers still classify it that way, despite its size and technological strength, because of factors such as income per person and market access. Debates over this label are common. Because China has such a large weight in the indexes, some funds now offer emerging market exposure excluding it.
What is the difference between emerging and frontier markets?
Frontier markets are generally smaller, less liquid and harder for foreigners to access. They can offer high potential returns, along with higher risk and higher costs. Many investors avoid them entirely, or hold them only through a broad fund, because they lack the market infrastructure found in larger emerging economies.
Do emerging markets help diversify a portfolio?
They can, since their returns do not always move with those of developed markets. However, correlation tends to rise during global crises, which is when diversification is most needed. They add variety, though they are not a safe haven, and a small allocation can still increase overall volatility.
