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  • What does Indonesia have in common with countries like India, Brazil and Russia?

  • They're all classified as emerging markets.

  • It's a term that originated in the 1980s and has stuck around since then.

  • Two of the most important reasons why?

  • Well, these countries are crucial when it comes to driving global economic growth.

  • And their financial markets can be goldmines for investors,

  • especially those with an appetite for higher risk.

  • So what makes an emerging market today?

  • And why do investors have such a love-hate relationship with them?

  • The term "emerging markets" was coined by a World Bank employee Antoine van Agtmael.

  • The finance arm of the World Bank wanted to get more foreign investment into third world countries,

  • but didn't think the termthird worldreally inspired investors.

  • To make it sound more attractive, van Agtmael coined the termemerging markets.”

  • But if you want a definitive list of emerging markets, good luck.

  • The list varies depending on who you ask.

  • The IMF classifies 96 countries as emerging.

  • It uses criteria such as how much citizens of that country earn, how diverse the country's exports are,

  • and how sophisticated its financial system is.

  • That's one measure.

  • But investment research firm MSCI, which creates stock indexes,

  • classifies 24 countries as emerging markets.

  • Okay, but what's an index?

  • Essentially, it's a list of stocks that measures certain features.

  • For example, if you want to look at how the biggest U.S. companies are doing,

  • you could look at the Dow Jones Industrial Average, which covers 30 household names.

  • The MSCI is known for its Emerging Markets Index, which shows us

  • how emerging countries like Brazil, China and Turkey are doing.

  • Unlike the IMF, the MSCI uses how investable a country's stock market is

  • to determine whether it's an emerging market.

  • That's important, because this influences how much foreign investment a country can get.

  • You may be wondering how such a diverse group of countries could possibly be grouped together.

  • Despite their many differences, there are a few characteristics that they do tend to have in common.

  • Let's take a look at the first one.

  • The termemerging marketswas initially used for developing countries,

  • which meant that the average person living there tends to earn less than someone in a developed country.

  • Economists call this a lower income per capita.

  • But that's not always true today.

  • Some countries, like the United Arab Emirates and South Korea are considered emerging markets,

  • but they have higher income per capita than some developed countries, like Spain and Portugal.

  • An investor's goal is to make money. For that, you need growth.

  • And emerging markets are known to do just that, rapidly.

  • Fast growth is our second characteristic.

  • One report found that one out of every four emerging economies

  • outperformed its peers and developed countries.

  • Of these 18 outperformers, seven exceeded annual per capita GDP growth of 3.5 percent for a 50 year period.

  • They include China, South Korea and Indonesia.

  • The other 11, which include India, Ethiopia and Cambodia, have enjoyed more recent gains,

  • growing at about five percent or higher over the past 20 years. That's 3.5 percentage points above the U.S.,

  • and enough to lift themselves into a new income bracket for countries.

  • That growth comes with a lot of risk.

  • And that brings us to our next characteristic, high volatility.

  • And if you need an example of volatility, just look at this.

  • The MSCI index, which shows total returns, shows emerging markets had been doing pretty well,

  • until January 2018, when things began to sour.

  • We've seen their currencies fall to historic lows against the U.S. dollar.

  • That's bad news for countries trying to pay off their debt.

  • It's a problem because a lot of that debt is held in foreign currencies,

  • particularly in the strengthening U.S. dollar. That makes paying off debts an uphill battle.

  • Not ideal when emerging markets have seen their total debt rise from $21 trillion in 2007 to $63 trillion in 2017.

  • Emerging markets crises are worrying, because they affect

  • multiple countries and tend to work in a vicious cycle.

  • First, the currency falls rapidly.

  • Countries then struggle to raise funds due to their less mature capital markets and investors flee.

  • This affects the country's assets and currency, and can sometimes

  • damage the country's banking system and even the economy.

  • It's important to note that an emerging market's status can come and go.

  • That could mean a step up as a developed nation, or a step back as a frontier nation.

  • Despite all the uncertainty, one thing is for sure, investors will continue to watch

  • emerging markets closely, as the countries continue to expand their role in the global economy.

  • Hi everyone, it's Xin En. Thanks for watching.

  • If you want to check out more of our videos, click here.

  • Feel free to leave any suggestions for future videos in the comments section.

  • That's all for now, see you next time.

What does Indonesia have in common with countries like India, Brazil and Russia?


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B1 中級

新興市場とは?| CNBCが解説 (What is an emerging market? | CNBC Explains)

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    PENG に公開 2021 年 01 月 14 日