What are emerging markets? Big risks big returns.

The term "emerging market" was first proposed in 1981 by Antoine van Agtmael, an American economist at the International Finance Corporation (IFC) under the World Bank Group. It refers to countries whose economic development lags behind North America, Western Europe, Japan and other "developed markets" (Developed Market), but are rapidly developing and industrializing, and have the opportunity to develop from "Developing Countries" to "Developed "Country" (Developed Countries) economies.

In 1981, the World Bank's definition of emerging markets at that time was: Emerging countries were defined as GNP per capita that did not reach the "high income level" defined by the World Bank.

However, the emerging market considered by investment institutions refers to a market with high economic growth, but due to factors such as immature systems and geopolitics, which result in high risks.

Emerging market countries
Countries covered by emerging markets usually refer to the division of the "MSCI Emerging Markets Index" (MSCI Emerging Markets Index). There are temporarily 27 emerging market countries recognized by MSCI. With the economic development of each country, the list will also be adjusted:
＊Asia Pacific: China, India, Taiwan, South Korea, Thailand, Indonesia, Philippines, Malaysia
＊Latin America: Brazil, Mexico, Chile, Peru, Argentina, Colombia
＊Eastern Europe: Russia, Poland, Hungary, Czech Republic, Greece

＊Middle East and Africa: South Africa, Saudi Arabia, Egypt, Turkey, United Arab Emirates, Qatar, Pakistan

High investment risk
Investment products in emerging markets include government bonds, corporate bonds, stocks, funds, ETFs, etc.

Many of these investors will choose to invest in Treasury bonds. The risk is slightly higher than that in the developed market, but the rewards are also higher, and they are issued by the state, which is somewhat recognizable. Don't think that bonds guaranteed by the state are safer. In fact, this is not the case. In the past, there have indeed been cases of "state default and non-payment of debt". Every time it happens, its bond and foreign exchange markets will fluctuate sharply.

The more well-known one was Russia in 1998, and the other was Greece in 2015. In addition, Argentina, Mexico and other countries also have default records, causing losses to investors. In addition, even if there is no default in the end, only the possibility of default is reported. , Will also cause severe turbulence in the bond market.

Another popular product is the stocks of large state-owned enterprises. Although its stock has great potential for appreciation, its short risk is also high, and its stock price fluctuates greatly.

Emerging markets are constantly changing

Over the years, many countries have been included in and removed from the MSCI Emerging Market Index, but there are some major changes that deserve our attention. Twenty years ago, China only accounted for 5% of the MSCI Emerging Market Index. With China's impressive economic growth and the gradual opening of the mainland financial market to foreign investors, China now accounts for more than 35% of the index. China's index weight continues to rise, causing the weight of some major markets to fall. For example, in 2002, South Korea was the most weighted emerging market, accounting for about 20% of the index, and its current share is only close to 10%. Similarly, in 2002, South Africa's index weight was almost close to 15%, but now it is less than 5%.

Brazil's index fluctuates greatly. Driven by the commodity super cycle, Brazil's index weight rose from less than 10% in 2000 to 17% in 2009, and it once became the second largest index component country. Faced with the impact of the global financial crisis in 2007, its growth came to a halt and now only accounts for 5% of the MSCI Emerging Markets Index.

This shows that market conditions in various countries are constantly changing, and data should be carefully analyzed before investing before deploying investment plans.