emerging markets
Economies that are transitioning from developing to developed status, offering high growth potential with higher risk from political instability, currency volatility, and less mature institutions.
Example
“The emerging markets fund invested in Brazil, India, and Vietnam — seeking higher growth than mature developed markets offered.”
Memory Tip
EMERGING MARKETS = high growth, high risk. Still developing institutions. Not yet developed markets.
Why It Matters
Understanding emerging markets matters because many investment portfolios, retirement accounts, and mutual funds include exposure to these economies. Higher growth potential can boost long-term returns, but the increased volatility and risks mean you need to carefully evaluate how much of your portfolio should be allocated to these investments based on your risk tolerance and time horizon.
Common Misconception
Many people assume that emerging markets are always risky investments to avoid entirely, when in reality they can be valuable for diversification and growth. The reality is that some emerging markets have matured significantly and offer more stability than others, and excluding them entirely from a portfolio may actually limit your long-term returns.
In Practice
An investor with a diversified portfolio might allocate 10 percent to an emerging markets index fund. If India experiences strong GDP growth and the fund gains 25 percent in a year, that 10 percent allocation contributes 2.5 percent to overall portfolio gains. However, if political instability causes currency devaluation and the fund drops 20 percent, that same allocation loses 2 percent, illustrating both the upside potential and downside risks.
Etymology
EMERGING (developing, growing into) MARKETS. Economies EMERGING into developed-market status.
Common Misspellings
Track markets & get real-time stock data
Related Terms
More in markets
Other markets terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.