In contrast with developed markets, emerging markets are usually significantly smaller, often newer, and may be considerably less liquid, which results in greater volatility.
In some well-established emerging markets, for example, fewer than 300 stocks are listed on the country's exchange.
Emerging markets may be more vulnerable to political instability as well, particularly if the country has a short democratic history, or if ethnic and religious controversies threaten the government. The newly reopened Baghdad Stock Exchange is one example.
Yet many experts think that emerging markets offer investors some of the best opportunities for long-term gain, especially in places where large populations are becoming more affluent and the economies have shown sustained growth.
While emerging markets are often more accessible to institutional investors, including mutual fund companies, than to individuals, some companies in emerging markets offer investments, such as ADRs and GDRs,
directly on U.S. markets.
Jeffrey Rosensweig, Goizueta Business School, Emory University
Dr. Jeffrey Rosensweig of the Goizueta Business School of Emory University discusses the conditions under which an emerging market might be reclassified as a developed market.
There's no concrete and simple rule for defining when an emerging market should be reclassified as a developed market. Perhaps the most important criteria are per capita income and GDP. Another could be per capita stock market capitalization. Using measures such as these, it could be argued that Singapore and South Korea, among others, are ready to graduate.
While emerging markets in Southeast Asia, South America, and South Africa are attracting some global investors, other markets, such as those in Russia, Ukraine, Pakistan, and most of Africa, haven't yet shown sustained economic growth. These markets are also perceived to pose more risk, politically and economically, than most investors are willing to take on.
Jeffrey Rosensweig, Goizueta Business School, Emory University 