Top Emerging Market Economies

Top Emerging Market Economies in the Global Economy

Emerging markets used to be a somewhat obscure niche of the international investing world. Not anymore. These rapidly developing countries are playing an increasingly important role in the global economic system. In fact, more than half of global economic growth is now driven by emerging markets. For investors, these countries have also offered some of the most spectacular returns over the long-term. We'll take a closer look at the so-called BRIC countries - Brazil, Russia, India and China, and beyond.

In general, investors may want to consider building these markets into their portfolios in order to maximize their long-term returns and diversify their risk.

Brazil

Brazil has been a significant growth driver in Latin America as the largest economy in the South America. Currently, the country is struggling with slowing growth and inflation but investors should keep an eye on it moving forward. Investors interested in betting on a rebound in Brazil have a wide range of options, ranging from exchange-traded funds to several large companies like oil producer Petrobras, which has a New York Stock Exchange-listed ADR.

The largest Brazil ETFs include:

  • iShares MSCI Brazil Capped ETF (EWZ)
  • First Trust Brazil AlphaDEX Fund (FBZ)
  • Van Eck Vectors Brazil Small-Cap ETF (BRF)

China

With a population of 1.3 billion, China is the world's most populous nation and its economy isn't far behind. China's economy has been slowing down over the past couple of years, but it remains a major global growth driver. The iShares FTSE/Xinhua China 25 is one exchange-traded fund that invests in Chinese stocks. Investors can participate in China through mutual funds, ETFs, and Chinese companies with listings on Nasdaq and the New York Stock Exchange.

The largest China ETFs include:

  • iShares China Large Cap ETF (FXI)
  • iShares MSCI China ETF (MCHI)
  • SPDR S&P China ETF (GXC)

India

While India's economic growth rate recently surpassed China's as a key emerging market. Investors in India have also seen some upside over the past several years. India's large English-speaking population and technology-savvy outsourcing firms like Infosys Technologies, have helped make this country of 1 billion an emerging market economy to watch.

The largest India ETFs include:

  • iShares MSCI India ETF (INDA)
  • WisdomTree India Earnings Fund (EPI)
  • iShares India 50 ETF (INDY)

Russia

Russia's transformation from communism to a Wild West-like embrace of capitalism has had a staggering impact on its economy. The global boom in commodities has also helped Russia's stock market become one of the world's top performers until the downturn in 2015. While there are some Russian ADRs available, most investors are better off sticking with a mutual fund that invests in Russia, such as the Third Millennium Russia Fund.

The largest Russia ETFs include:

  • Van Eck Vectors Russia ETF (RSX)
  • iShares MSCI Russia Capped ETF (ERUS)
  • Direxion Daily Russia Bull 3x ETF (RUSL)

The Next 11 Economies

Jim O'Neill - the man responsible for coining the BRIC acronym to represent emerging markets - also coined the 'Next 11' to represent the world economies with the potential to become among the world's largest during this century. The countries include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam. These are frontier markets that investors may want to consider investing in as the next big emerging markets.

Others

 There are many different countries that fall under the emerging market category, including Argentina, Chile, Mexico, Peru, Turkey and others. With more and more frontier markets becoming emerging markets, these markets could become an increasingly large part of an international investor's portfolio. Frontier markets are another area where investors may want to take a look, as a riskier version of emerging markets.

Takeaway Points

Emerging markets been tremendously volatile over the past couple of years, experiencing some tremendous success in the earlier part of the decade. The so-called BRIC economies - Brazil, Russia, India, and China - are among the most popular emerging markets, although frontier markets are rapidly growing in popularity. In general, investors may want to consider allocating a portion of their portfolio to these markets, although there's certainly some risks involved. Frontier markets may be another option for investors looking for exposure to these markets. Often times, these markets have similar ETF and ADR options available for U.S.-based investors to build exposure in their portfolios. It's important to be aware of the risks involved, however, before investing in order to adjust allocations and ensure an optimal risk-adjusted portfolio return.