Emerging market growth: Opportunities, risks & the impact of technology

List of emerging markets

There is no universally agreed-upon list of emerging markets since different institutions use varying criteria:

• MSCI. As of 2025, the MSCI Emerging Markets Index includes 24 countries, such as Brazil, China, India, South Africa, and Thailand.
• FTSE Russell. FTSE classifies countries into Developed, Advanced Emerging, Secondary Emerging, and Frontier markets. For example, as of April 2025, FTSE Russell lists countries like Brazil, South Africa, Mexico, and Thailand as Advanced Emerging markets.
• S&P Dow Jones Indices. Their emerging market indices encompass countries across the Americas, Asia Pacific, Europe, and the Middle East & Africa.

Some countries, like Vietnam, are on the edge—still labelled as frontier markets but with growing investor interest.

Meanwhile, China remains a standout case. Despite being the second-largest economy globally, it continues to face constraints related to capital access, government involvement in the economy, and transparency concerns, factors that keep it within most emerging market indices.

India, too, is viewed as a high-potential emerging market, characterised by sustained reforms, strong domestic demand, and a growing digital ecosystem. However, challenges persist, including lingering infrastructure and regulatory limitations.

Understanding the inclusion criteria and classifications of these markets is crucial for investors when developing allocation strategies, assessing risks, and constructing diversified portfolios across asset classes.

How emerging markets impact the global economy

Emerging markets are central to global growth. These economies now account for over two-thirds of global GDP growth, reflecting their scale and increasing integration into trade, investment, and production systems. Also, according to the International Monetary Fund (IMF), emerging and developing economies are projected to grow by 3.7% this year, compared to 1.4% for advanced economies.

Here are a few ways in which they impact the global economy:

Trade and supply chain integration

Many emerging markets are resource-rich and export-intensive. Their demand for raw materials, ranging from oil and metals to agricultural inputs, has a direct influence on global pricing and supply chains. At the same time, their role in global manufacturing continues to grow. Firms from developed economies increasingly rely on emerging markets to produce goods, assemble components, and provide supporting services.

Monetary spillovers and capital flows

Interest rate changes in large emerging markets now carry broader implications. Shifts in monetary policy in economies like India or Brazil can affect foreign exchange markets, debt issuance costs, and inflation expectations across other regions. As emerging market bonds become more widely held by global investors, central bank decisions in these regions are monitored as closely as those in the US or Eurozone.

Shaping global policy debates

Emerging markets have gained influence within multilateral institutions. Countries like China, India, and Brazil are now central to international discussions on trade rules, climate commitments, and reform of global financial institutions. This evolving role gives emerging markets more power to shape global norms and capital allocation frameworks.

What drives emerging market growth today

Emerging markets continue to grow, propelled by multiple structural forces evolving across regions, sectors, and populations. Some drivers are longstanding, while others reflect newer shifts tied to policy, demographics, and technological capacity.

Urbanisation and demographic momentum

Rapid population growth remains a key factor in many emerging economies, especially in Sub-Saharan Africa and South Asia. This growth is reshaping living patterns, with urbanisation accelerating and creating new demand for housing, infrastructure, transport, and basic services. In Nigeria, for example, the urban population has risen to approximately 55% in 2025, up from about 34% in 2000. These shifts support economic activity and help expand consumer markets while putting pressure on public services.

Infrastructure and industrial development

Physical investment in roads, energy grids, ports, and digital infrastructure continues to underpin growth. In many countries, governments are actively directing capital toward these areas as part of broader development strategies. Infrastructure improvements lower the cost of doing business and open new regions to trade and investment. This has been particularly visible in Southeast Asia, where transport corridors and special economic zones have helped boost manufacturing capacity.

Export-led manufacturing

Several high-growth emerging markets continue to rely on export manufacturing to drive GDP growth. Countries like Vietnam and Mexico are examples where policy, low labour costs, and improving logistics have attracted global firms looking to diversify supply chains beyond China. Export earnings support reserves, create jobs, and drive productivity improvements. However, global demand shifts and trade policy changes, such as tariffs or ESG-related import standards, can quickly change the outlook for these economies.

Emerging market opportunities to consider

Emerging markets are no longer defined solely by low-cost labour or resource exports. Across multiple regions, new opportunities are forming in sectors driven by rising consumer demand, regulatory shifts, and digital transformation. For investors and businesses, these developments are opening the door to new opportunities:

Renewable energy

Governments in many emerging countries are accelerating investment in clean energy such as wind, solar, and green hydrogen. As the cost of technology falls and climate targets tighten, these markets are developing frameworks that attract both foreign direct investment and public-private partnerships.

Digital finance and payments

Mobile money and digital banking continue to reshape access to financial services. Africa, in particular, has seen wide-scale adoption of mobile wallets, with several countries expanding beyond basic transfers to include lending, savings, and insurance products. Fintech investment is also growing in Southeast Asia and Latin America, where unbanked populations remain high, but smartphone penetration is rising.

Consumer goods and services

A growing middle class in many emerging markets is fuelling demand for packaged goods, healthcare, private education, and e-commerce. These sectors benefit from demographic expansion and rising disposable incomes. Local and regional brands are also gaining strength, partly by adapting products to cultural and logistical nuances that multinationals sometimes overlook.

Agritech and food logistics

Modernising agriculture remains a priority in many markets with large rural populations. Startups and multinational firms are working on digital tools for weather monitoring, irrigation management, and market access. Brazil and India are actively experimenting with agritech platforms that connect small-scale farmers with real-time pricing and financing data.

Transport and infrastructure

Beyond large-scale projects, local infrastructure such as cold chains, warehousing, and digital broadband is emerging as a critical investment theme. These assets support both domestic demand and export logistics, especially in landlocked or rural regions that are under-served by existing infrastructure grids.

The role of technology in shaping emerging market potential

Technology in emerging markets is reshaping economic development in ways that differ from mature economies. Many of these countries are skipping older systems altogether, adopting mobile-first services and digital infrastructure to solve longstanding structural gaps. This is particularly evident in financial services, where mobile money platforms have expanded rapidly. These systems offer more than just basic transfers; they now provide lending, savings, and insurance, making digital finance a key driver of inclusion.

Governments are also experimenting with new tools. Central Bank Digital Currencies (CBDCs), for example, are being piloted or rolled out in many countries. These state-backed digital currencies are expected to reduce transaction costs and expand access to financial services in rural or informal segments of the economy. In parallel, public investment in digital identity systems and broadband networks continues to accelerate digital uptake in underserved areas.

On the consumer side, rising smartphone adoption and improved internet access have unlocked significant growth in e-commerce, particularly in Southeast Asia, Latin America, and parts of Sub-Saharan Africa. This has led to rising demand for adjacent sectors such as logistics, payments, and data services, where local startups and regional players are gaining traction. These developments are also attracting venture capital and reshaping consumption patterns in urban and semi-urban centres.

Finally, in manufacturing, the impact of emerging technology on the country's economy can be more gradual but still meaningful. Automation and digital supply chain tools are beginning to take hold in countries like Vietnam and Mexico, helping these economies build resilience and reduce dependence on low-cost labour advantages alone. Over time, the adoption of such technologies may determine which countries move up the value chain and remain competitive.

Risks of emerging markets

Emerging markets offer significant upside potential but also introduce risks that investors should pay attention to. Here are the main ones:

Political risk

Policy volatility and governance challenges can change the investment landscape quickly. Shifts in leadership, abrupt regulatory changes, or lack of institutional checks often lead to unexpected disruptions. In markets with weak judicial systems or limited press freedom, transparency and investor protection are harder to secure.

Capital controls and ownership restrictions

Many emerging markets enforce restrictions on capital flows or foreign ownership to manage domestic economic stability. These measures can range from profit repatriation limits to sector-specific foreign ownership caps or forced local partnerships. While designed to stabilise currency or protect strategic industries, such controls often reduce flexibility and raise transaction costs for foreign investors, especially during periods of market stress or political turnover.

Institutional and data quality gaps

Reliable economic data and institutional capacity remain inconsistent across emerging markets. That means investors often operate with limited access to accurate information on inflation, employment, or fiscal health. In several countries, GDP figures may be outdated or fail to account for large informal economies. Weak regulatory enforcement, particularly in banking, real estate, or environmental compliance, also adds uncertainty. These gaps can obscure vulnerabilities that only become visible under financial or political pressure.

Macroeconomic volatility

Many emerging markets are prone to sharp swings in inflation, interest rates, and exchange rates. External shocks, such as commodity price collapses, rate hikes, or geopolitical disruptions, can cause balance of payments crises or currency devaluations. That means even a well-performing local asset can suffer when the domestic currency depreciates significantly.

Liquidity risk

Even in the absence of formal capital controls, many emerging market assets trade in shallow or fragmented markets. During times of stress, foreign investors may face difficulty exiting positions due to low trading volumes, wide bid-ask spreads, or price gapping. This is particularly relevant in local-currency sovereign debt, small-cap equities, and private infrastructure assets, where market depth is limited.

Legal and contract enforcement risk

Legal systems in some emerging markets may lack the independence, efficiency, or enforceability required to protect investor rights. Even when contracts are clear, enforcement may be subject to political interference, bureaucratic delays, or corruption. This is a recurring concern in sectors such as mining, real estate, and utilities, where governments have retroactively altered license terms, revised tax frameworks, or revoked permits under shifting political agendas.

Emerging markets need recalibrated expectations

Emerging markets remain essential to global growth, but the investment case is more complex than it once was. While many countries continue to expand at a faster pace than developed economies, the drivers of that growth are shifting away from commodity cycles and toward consumer demand, infrastructure, and digital transformation. At the same time, the risks, from capital controls to governance uncertainty, require attention.

Exposure to emerging economies can still offer attractive long-term returns, but it depends on understanding which regions are adapting, which sectors are leading, and how well companies or projects are positioned within their local context. As digital tools reshape services, as political dynamics evolve, and as macroeconomic pressures persist, strategies need to reflect both the opportunities and the limits of these markets.