Developing markets are expected to grow faster than developed markets
Developing markets are generally divided into two parts: emerging markets and frontier markets.
Developed markets are found in North America, Western Europe, and East Asia. When it comes to developing markets, these are markets in Eastern and Central Europe (formerly Communist-controlled states), and the rest of the world, often known as the Third World. But, this classification is too simplistic. Such dynamic and powerful economies as China and India are considered to be emerging markets. On the other hand, relatively undeveloped countries, such as those of Africa or some Asian countries, are considered to be frontier markets.
This classification matters to investors. Many indices, and underlying mutual funds, index funds or ETFs, have specific investment mandates. If a fund concentrates on emerging markets, then it won't invest in frontier markets. Often, if a country gets "upgraded" from frontier to emerging market, the capital flows will increase.
Developing markets are generally the mature, slow-growing markets, although many companies from the rich world do business all over the world. When it comes to characteristics of emerging markets, these are expected to grow more quickly, although some are reaching maturity of developed markets. When it comes to investing in frontier markets, these are considered to be the most risky and are expected to produce higher returns to compensate for elevated risks.
This section focuses on both emerging markets and frontier markets.
Related articles on this site: