Emerging markets are the markets of developing countries. These are nations that are rapidly industrializing and moving toward a free market economy system. Many emerging countries are moving away from traditional agricultural or petroleum-based economies and moving toward developing a better quality of life and opportunities for their citizens. There are several ways to invest in emerging markets including using exchange-traded funds, mutual funds, individual stocks, and contracts for differences.

What are the characteristics of an emerging market?

There are some specific characteristics of an emerging market country. In general, a nation that is emerging has lower than average income per individual, which drives rapid economic growth. To help incentivize their citizens, leaders of emerging markets are willing to undertake the steps needed to create change toward a more industrialized economy.

Many emerging markets are unstable and experience high volatility. Changes in the social climate and domestic policy instability can lead to sharp fluctuations in financial securities. In addition, natural disasters can undermine an emerging country’s ability to absorb issues related to traditional economic revenue generation such as raw materials.

Another issue that emerging markets face is wild currency swings. While many emerging countries attempt to tie their currency to the US dollar, those that are not pegged to the dollar can experience significant currency depreciation. Additionally, these countries are vulnerable to commodity swings, such as those of oil or food.

Emerging market opportunities

There are several ways to take advantage of the opportunities within the emerging markets arena. You can buy and sell an emerging market fund or consider trading an emerging market currency. Generally, emerging market funds peg their performance to an index such as the MSCI, but some hold baskets of specific countries’ stocks and bonds.

The benefit of holding a fund is that you do not have to perform research on a foreign company or economic policies. A fund also helps mitigate some of the risks by diversifying your investments into a basket of emerging markets, instead of just one.

Emerging markets in 2019

Global economic growth contracted in 2018 and had continued to falter in 2019. Concerns over the US-China trade war and rising tensions between US President Donald Trump and Chinese President Xi Jinping have led to imposing tariffs on China, and retaliatory tariffs on the US. The uncertainty spread from China to other emerging markets, impacting financial markets across the board. This has created volatility in emerging market stocks and forex.

Additionally, the dollar rallied against most emerging currencies in 2018 and early 2019, which has weighed on emerging currencies as well as their equity performance. This is because many emerging governments have loans and bonds that are US dollars and, as the dollar increases in value, their debts become larger and more difficult to pay off.

The financial stresses coming from the trade war and the rising US dollar have generated a reluctance to invest in any EM economies. Additionally, the rising US dollar has also weighed on commodity prices which drive economic growth in many emerging economies.

The worst emerging markets to invest in

Not every emerging market is a good investment. Those who continue to focus on rising commodity prices have experienced significant volatility. In addition, their lack of economic diversification has led to subsidies for agricultural products and the reliance on government jobs. Additionally, to grow, these emerging governments relied on foreign investment since their people had little savings to invest.

During the past five years, commodity prices have eased. Governments that were reliant on the high price of a commodity needed to slash subsidies or to increase their debt to foreigners. Eventually, foreign investors began selling their assets creating a cycle of selling. Some of these countries include Turkey, South Africa, and Brazil. Other countries spent money investing in infrastructure and education to create a more industrialized economy. These countries include China, South Korea, India, and Taiwan.

What are the best emerging markets to invest in?

China has a population of 1.3 billion and is the second-largest global economy currently growing at 6.2% per year. While the acceleration in economic growth has been slowing, it remains a global growth driver. There are several ways to invest in China including exchange-traded funds that hold Chinese stocks. The iShares FTSE/Xinhua China 25 is one exchange-traded fund that invests in Chinese stocks. The Deutsche X-tracker Harvest 300 is another. Additionally, investors can buy and sell Chinese mutual funds, ETFs and individual shares that are listed in on the New York Stock Exchange and the Nasdaq.

India has been experiencing robust growth. It has a large English-speaking population and technology-savvy outsourcing firms which have helped make this country of 1 billion an emerging market economy to keep an eye on. Like China, you can trade Indian mutual funds, ETFs, as well as their currency.

Investing in emerging market currencies

There are several ways to invest in emerging market currencies. You can use a forex broker who might provide contracts for differences or non-deliverable forwards that track an EM currency pair. You can also find ETFs that hold currencies or deposits that track the movement of an EM currency. Most EM currencies trade against the US dollar.


Emerging markets are defined as the markets of developing countries. These are nations that are rapidly industrializing and can provide excellent investment opportunities. Many emerging countries are moving away from traditional raw material-based economies. You can take stock, bond, and currency positions in emerging markets by using mutual funds, exchange-traded funds, individual shares, and contracts for differences.

Trading in emerging markets can be associated with many risks. Assets can be volatile due to the unstable nature of the political systems. Many emerging market leaders do not have the infrastructure to deal with natural disasters, which can also generate unwanted market volatility. Developing countries that have invested in their infrastructure and have not relied on rising commodity prices are likely to outperform their rivals.

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