Jargon Hack: Emerging Markets

Emerging Markets, (Broadly) Defined

An emerging market refers to a country with a developing economy and growing business infrastructure.

The term is used primarily to describe nations with free markets and expanding global trade, but which may still have some governmental and institutional instability, and areas that are still primarily rural or underdeveloped.

Mexico, India and China are three countries widely referred to as emerging markets, but there are dozens of other examples throughout the world.

What classifies a country’s market?

The answer isn’t exactly concrete. The countries that are considered emerging markets will vary slightly between different analysts or investment firms, and they change over time.

Global stocks on domestic markets

When you invest in an emerging market, you’re purchasing the stocks of businesses located in those countries.

While these stocks are generally traded on local exchanges, investors in the U.S. can often buy them on our own exchanges, through something called an American Depository Receipt, or ADR. It’s traded on a U.S. exchange, but it is essentially a certificate issued by a bank that represents shares of a foreign stock.

Another way to buy them is through an ETF.

Why own emerging market stocks?

The globalized economy has opened many avenues of growth for both businesses and investors. These opportunities are increasingly appearing outside U.S. stock exchanges in emerging markets.