What is emerging markets?
An emerging market is a developing economy whose financial markets are growing, opening up and becoming easier for foreign investors to enter, but are not yet as large, liquid or stable as those of developed economies.
People also say emerging market economies (EMEs) or simply "EM". Typical features include:
- faster economic growth than developed economies
- higher inflation and interest rates
- currencies that move sharply and can fall fast
- markets with less depth and less liquidity
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Formal definition and edge cases
No single official list exists. Three groups use the term in different ways:
| Who uses it | What it means for them |
|---|---|
| IMF and World Bank | A macroeconomic group, often written as "emerging market and developing economies" |
| Index providers (MSCI, FTSE Russell, S&P) | A market category based on economic development, market size and liquidity, and market accessibility (foreign ownership limits, capital controls, settlement and custody rules) |
| News and banks | A loose label for non-developed markets that attract foreign capital |
Edge cases experienced readers should know:
- High income does not mean developed. A rich country can stay "emerging" if foreign investors face capital controls or settlement limits.
- Frontier markets are smaller and less accessible than emerging markets. Pakistan is a common example of a market that index providers have moved between the emerging and frontier categories over time. This is the "Pakistan emerging market" question: the answer depends on whose classification you read and when.
- Reclassification moves money. Index-tracking funds buy or sell when a country changes category, so price changes can come from the change of label rather than the economy itself.
Worked example (hypothetical)
A foreign investor buys a basket of shares on an emerging market exchange, priced in the local currency.
- Over the holding period, the shares rise in local-currency terms.
- Over the same period, the local currency loses value against the US dollar (see currency depreciation).
- When the investor converts back to dollars, the gain is smaller than the local price chart shows. If the currency falls more than the shares rise, the result in dollars is a loss.
This is currency risk, and it is a main reason emerging market returns differ from local index charts. To test your own figures, use the calculators.
Where you see the term
- Index and fund names, such as emerging markets equity indices and the funds that track them.
- IMF and bank reports, which group countries as advanced or emerging and developing.
- News, for example "EM currencies fall as the dollar strengthens" or a central bank decision such as SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC).
- Trading platforms, where emerging market currencies often appear as "exotic" currency pairs. These pairs usually have wider spreads and sharper moves.
Leveraged CFD and forex trading on these instruments can lose money fast. For Pakistani residents, per the SBP, remitting foreign exchange to overseas forex/margin/CFD platforms is not allowed through any payment channel (FERA s.5(1)), and per the SECP, offshore platforms have no Pakistani licence or oversight and offer no legal protection or recourse. See regulation and safety.
Related terms
- Financial contagion and flight to quality
- Devaluation and revaluation, crawling peg, dollarization
- Debt-to-GDP ratio, fiscal deficit, Eurobond, credit spread
- Capital and financial account, ADR and GDR
- Fundamental analysis and the full trading glossary
Frequent questions
What does emerging markets mean in simple words?
It means developing economies whose financial markets are growing and opening to foreign investors but are not yet fully developed.
Is Pakistan an emerging market?
It depends on the classifier. Index providers have placed Pakistan in both the emerging and frontier categories at different times, so check the current classification of the index you follow.
What is the difference between emerging and frontier markets?
Frontier markets are smaller, less liquid and harder for foreign investors to access than emerging markets.
Why are emerging markets considered riskier?
Their currencies, interest rates and capital flows can change quickly, and stress in one country can spread to others through contagion.