Chapter 6
Emerging Markets
Emerging markets—it may be one of the best marketing phrases ever devised. The phrase seems to describe markets that hold a lot of potential for future economic growth and the promise of future returns for investors. Since this phrase is usually attached to national markets where income is relatively low, a more accurate description would be the markets of less developed countries. Some countries will have great potential for growth and may actually be growing quite rapidly. Other countries, however, may have either little growth or actually be stumbling backwards. Naturally, few investors would want to invest in submerging markets, so all are labeled emerging.1
The World Bank champions the use of the term emerging markets through its affiliate, the International Finance Corporation (IFC). The IFC was created to foster private investment in developing countries. The IFC was the first organization to establish a database of stock market returns for the less developed countries, and it also started publishing an annual yearbook with extensive statistics describing the world’s stock markets. (As discussed later, MSCI also has an extensive data set of emerging market stock returns). In 2000, Standard & Poor’s purchased the database and yearbook from the IFC, so the yearbook is now entitled the Standard & Poor’s Global Stock Markets Factbook.
This chapter will show that emerging markets have provided handsome returns for international investors—at least over ...
