Emerging markets: Growth drivers, risks and the role of technology

List of emerging markets

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

• MSCI. The MSCI Emerging Markets Index covers large- and mid-cap companies across 24 emerging markets, including Brazil, China, India, South Africa, and Thailand.
• FTSE Russell. FTSE classifies equity markets as Developed, Advanced Emerging, Secondary Emerging or Frontier. As of its April 2026 classification matrix, examples of Advanced Emerging markets include Brazil, Greece, Malaysia, Mexico, South Africa, Thailand and Turkey.
• S&P Dow Jones Indices. S&P Dow Jones Indices also maintains emerging market indices, with country coverage varying by index methodology.

Some countries can move between classification categories over time as index providers review market accessibility, liquidity and other criteria. Vietnam is one example often discussed in relation to frontier and emerging market classification.

China is a useful example of why index classification does not depend solely on economic size. Despite its economic scale, issues such as market accessibility, capital controls, state involvement and transparency are among the factors investors consider when assessing exposure.

India is another large emerging market often discussed in relation to domestic demand, reform, infrastructure development and digital adoption. It also carries risks, including infrastructure gaps, regulatory complexity and valuation sensitivity.

Understanding index inclusion criteria and country classifications can help investors assess what an emerging market allocation actually contains.

How emerging markets impact the global economy

Emerging markets and developing economies are important to global growth, trade, investment and production systems. According to the IMF’s April 2026 World Economic Outlook, emerging market and developing economies are projected to grow by 3.9% in 2026, compared with 1.8% for advanced economies.

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

Trade and supply chain integration

Some emerging markets are resource-rich and export-intensive. Their supply and demand for raw materials, including energy, metals and agricultural inputs, can influence global pricing and supply chains. At the same time, some emerging markets play an important role in global manufacturing. Companies from developed economies sometimes rely on emerging markets for production, component assembly, raw materials or supporting services.

Monetary spillovers and capital flows

Interest rate changes in large emerging markets can have wider implications for currencies, debt markets and capital flows. Shifts in monetary policy in economies such as India and Brazil can affect foreign exchange markets, debt issuance costs, and investor risk appetite. As emerging market bonds become more relevant to global investors, central bank decisions in these regions can receive greater market attention.

Shaping global policy debates

Some emerging markets have gained influence within multilateral institutions and global policy discussions. Countries like China, India, and Brazil play a significant role in discussions on trade rules, climate commitments and reform of global financial institutions. This evolving role may affect global norms, trade priorities and investment frameworks over time.

What can drive emerging market growth

Emerging markets continue can be influenced by structural forces that vary across regions, sectors and populations. Some drivers are longstanding, while others reflect changes in policy, demographics and technological capacity.

Urbanisation and demographic momentum

Population growth remains an important factor in some emerging economies, especially in parts of Sub-Saharan Africa and South Asia. This growth can reshape living patterns as urbanisation increases demand for housing, infrastructure, transport and basic services. In Nigeria, for example, World Bank data show that the urban population was about 63% of the total in 2024, compared with around 43% in 2000. These shifts can support economic activity and consumer-market development, while also putting pressure on housing, infrastructure and public services.

Infrastructure and industrial development

Investment in roads, energy grids, ports and digital infrastructure can support growth by improving connectivity and reducing bottlenecks. In some countries, governments direct capital toward these areas as part of broader development strategies. Infrastructure improvements may lower the cost of doing business and improve access to trade and investment. This has been visible in parts of Southeast Asia, where transport corridors and special economic zones have supported manufacturing capacity.

Export-led manufacturing

Several emerging markets rely on export manufacturing as one contributor to GDP growth. Countries such as Vietnam and Mexico are examples where policy, labour costs and logistics have attracted firms looking to diversify supply chains. Export earnings can support reserves, employment and productivity, although benefits vary by sector and economy. However, global demand shifts and trade policy changes, such as tariffs or sustainability-related import standards, can quickly change the outlook for export-led economies.

Emerging market sectors investors often monitor

Emerging markets are no longer defined solely by low-cost labour or resource exports. Across multiple regions, investors often monitor sectors linked to consumer demand, regulation, infrastructure and digital adoption. These areas may offer growth exposure, but outcomes depend on local policy, competition, funding conditions and execution.

Renewable energy

Some emerging-market governments are investing in clean energy, such as wind, solar, and green hydrogen. Falling technology costs and climate targets often support investment frameworks, although project returns can also depend on regulation, financing costs, grid capacity and political risk.

Digital finance and payments

Mobile money and digital banking can expand access to financial services in markets with lower traditional banking penetration. In parts of Africa, mobile wallets have expanded beyond basic transfers to services such as lending, savings and insurance. Fintech activity is also visible in Southeast Asia and Latin America, where unbanked populations and rising smartphone adoption can support digital financial services.

Consumer goods and services

Rising incomes and urbanisation in some emerging markets can support demand for packaged goods, healthcare, private education and e-commerce. These sectors may benefit from demographic expansion and rising disposable incomes, although affordability, competition and regulation vary by country. Also, local and regional brands may compete effectively when they adapt products to local preferences, distribution networks and price points.

Agritech and food logistics

Agricultural modernisation is a policy and investment focus in some markets with large rural populations. Startups and larger firms are developing digital tools for areas such as weather monitoring, irrigation management and market access. Brazil and India are examples of markets where agritech platforms are being developed to connect farmers with data, market access or financing tools.

Transport and infrastructure

Beyond large-scale projects, local infrastructure such as cold chains, warehousing, and digital broadband can be important for domestic trade and export logistics. These assets may support both domestic demand and export logistics, especially in landlocked or rural regions that are underserved by existing infrastructure grids.

The role of technology in emerging market development

Technology can affect economic development in emerging markets in ways that differ from mature economies. Some countries have adopted mobile-first services or digital infrastructure without passing through the same legacy systems used in more mature markets. This is visible in financial services, where mobile money platforms have expanded in several markets. Some of these platforms now include lending, savings and insurance features, which may support financial inclusion where adoption, regulation and consumer protection are effective.

Governments are also experimenting with new tools. Central Bank Digital Currencies (CBDCs), for example, are being piloted or rolled out in some countries. These state-backed digital currencies may be intended to reduce transaction costs or expand access to financial services, but outcomes depend on design, adoption, regulation, privacy safeguards and trust. In parallel, public investment in digital identity systems and broadband networks may support digital adoption in underserved areas.

On the consumer side, rising smartphone adoption and improved internet access may support e-commerce growth in regions such as Southeast Asia, Latin America and parts of Sub-Saharan Africa. This can increase demand for adjacent services such as logistics, payments and data infrastructure, although competition, regulation and funding conditions can affect outcomes. These developments may attract venture capital and affect consumption patterns in urban and semi-urban centres.

Finally, in manufacturing, the impact of emerging technology can be gradual and vary across countries and sectors. 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, technology adoption may influence which countries move up the value chain, but competitiveness also depends on education, infrastructure, regulation, trade access and capital availability.

Risks of investing in emerging markets

Emerging markets may offer growth exposure, but they can also involve higher political, currency, liquidity, regulatory and governance risks than developed markets.

Common risks include:

Political risk

Policy changes and governance challenges can affect market access, company earnings, valuations and investor rights. Shifts in leadership, abrupt regulatory changes, or weak institutional checks may lead to unexpected disruptions. In markets with weak judicial systems or limited press freedom, transparency and investor protection may be harder to assess or enforce.

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. This can mean investors have less reliable or less timely information on inflation, employment or fiscal health. In several countries, GDP figures may be outdated or may not fully capture informal economic activity. Weak regulatory enforcement, particularly in banking, real estate, or environmental compliance, also adds uncertainty. These gaps can make vulnerabilities harder to identify before financial or political pressure increases.

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 a local asset may perform well in domestic-currency terms while delivering weaker returns to a foreign investor if 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 license terms, tax frameworks or permits may be affected by political or regulatory changes.

Emerging markets require careful risk assessment

Emerging markets can play an important role in global growth, trade and production, but the investment case varies widely by country, sector and asset class. Some economies may benefit from consumer demand, infrastructure development or digital adoption, while others remain exposed to commodity cycles, governance uncertainty, capital controls or currency volatility.

Exposure to emerging economies may offer long-term return potential, but outcomes depend on valuation, currency movements, liquidity, governance, regulation and local execution. Losses are possible, and higher growth does not automatically translate into stronger investment returns. As digital tools, political dynamics and macroeconomic pressures change, emerging market strategies need to reflect both potential growth drivers and the limits of these markets.