What Are The Main Characteristics Of Emerging Markets?

1238 words - 5 pages

Final academic essay

What are the main characteristics of emerging markets?
In contemporary society, emerging Markets (EM) are increasingly becoming the most important strength that could promote the development of the world economy. Broadly speaking, the term "emerging market" has been used mainly to refer to the developing world in Asia, Africa, and Latin America. (Mody,2004). Narrowly speaking, EM refers to the stock markets of developing countries. The purpose of this article is to further analyze the characteristics of emerging markets, I am going to focus on the broad economic aspect of EM, which refers to some developing countries like Brazil, Russia, India, China. (BRICs). I ...view middle of the document...

Because the sharply high growth of emerging markets, the different features of EM have been widely discussed. First of all, the most important distinguishing feature of EM is their high level of growth and high return. According to The World Bank estimates, developing countries are projected to grow by 6.1% in 2010, 5.9% in 2011, and 6.1% in 2012, while the corresponding figures for the developed countries are just 2.3%, 2.4% and 2.6% in the world output growth (Hunkar 2010). Jonathan Anderson (2008), UBS’s chief Asia-Pacific economist, argues that the stocks in EM have overtaken that in developed countries in the last 25 years. At the same time, economy performances of several developing countries are as well as developed countries. For instance, the year-to-date returns of Brazil, India and Mexico are 4.3%, 17.1 % and 5.3%, respectively (Hunkar 2010). Although EM has experienced exceptional economic growth in recent years; it also expected to perform a continual increase growth and high return in their further.
Secondly, volatility is another contributing factor of EM. ‘An individual emerging market could have annualized volatility of up to 85%, a diversified exposure to emerging markets experienced greater than 30% volatility during 1976–2005’(Tokat, 2004,p.11) Mah claimed that the main factor contribute to higher volatility in EM is their political instability and lack of liquidity. If organizations combat with each other for power, there could be protests, riots and coups along the way. We called this political instability, which always make passing through fiscal and currency policies become hard. Let’s take Thai for example, even through the price about Thai equities are very low, they also have to leave prices suppressed for a long time because of its political instability. The other factor lack of liquidity means some investor holding shares may be difficult to find a buyer. The reason is that small to medium size market stocks may not be actively traded.
Last but not least, emerging markets are also characterized by lacking of transparency and corruption. More specifically, lack of transparency implies that legal and political systems are not open and accountable, which usually associated with corruption. As Michael demonstrates, there is a huge distinction between developed markets and emerging markets: developing markets are generally perceived to have relatively high corruption than developed markets, which could be best illustrated with the example of Russia: according to The world bank (2005), the bribe tax had fallen from 1.4% of a firm’s annual sales in 2002 to 1.0% in 2005; however, because of Russia’s general economic growth, the actual amount of money paid as bribes by businesses has grown. The world bank also indicates that 40% of firms surveyed in 2005 reported corruption as a major problem to doing business,...

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