From Morningstar: 2024-09-16 05:16:00

Investor perception of emerging and frontier markets has changed during the pandemic, leading to a shift in risk perception. Understanding benchmarks is helpful for investing in EM stocks and funds. MSCI categorizes countries as developed, emerging, and frontier based on various factors.

Countries in emerging and frontier markets are differentiated based on the size and liquidity of capital markets, governance standards, political stability, and equity market accessibility for foreign investors. While India and China have growing economies, their capital markets are considered less advanced than those in the West.

Frontier markets are those on the brink of becoming emerging markets. A country like Vietnam aspires to transition to an emerging market by a certain year. Liquidity is a crucial factor for investors, with emerging markets drawing more capital inflows compared to frontier markets.

China’s dominance in emerging markets has impacted overall performance, with nearly 25% of the index weighted towards the country. The shifting global landscape, including events like Russia’s invasion of Ukraine, has influenced emerging markets. The BRICS concept has evolved, with new countries being added to revive the idea.

Investors interested in emerging markets can opt for single-country funds for specific exposure. Emerging market funds provide diversification but are susceptible to regional crises. Detailed scrutiny of countries and companies within funds is necessary, as concentration risk can be high.

Investors need to be cautious of regional and country-specific risks when investing in emerging markets. While single-country funds offer targeted exposure, broader emerging market funds provide diversification. Company concentration within funds, such as tech giants like Samsung and Alibaba, should be considered when making investment choices.



Read more at Morningstar: What Are Emerging and Frontier Markets?