Emerging markets are increasingly playing a critical role in defending against global economic fragmentation, especially as advanced economies adopt more inward-looking policies. Once seen as developing countries with high growth potential, these markets have matured significantly, becoming permanent fixtures on the global economic stage. The term “emerging market” was coined in 1981 by Antoine van Agtmael to attract investors to developing economies. Despite their global growth, many emerging markets have outgrown the traditional stereotypes and are now influential players with sophisticated policies and global reach.
China’s entry into the World Trade Organization in 2001 sparked rapid growth in emerging markets, leading to a global commodity boom and benefiting many commodity-exporting nations. However, the situation shifted after 2010, with slower growth in China, the impact of the global financial crisis, and the challenges posed by geopolitical tensions, pandemics, and commodity price fluctuations. Despite these hurdles, emerging markets are now key contributors to global growth, accounting for nearly two-thirds of global economic expansion last year. Their influence is increasingly on par with advanced economies, demonstrating resilience through improved economic fundamentals, better fiscal policies, and stronger reserves.
Although many emerging markets have secured higher incomes and wealth for their populations, only a few have managed to attain “advanced economy” status. The path to convergence with advanced economies is complex, often requiring large capital investments and institutional reforms. Historically, countries that succeeded in this transition either followed an export-driven industrialisation model, as seen with the Asian Tigers, or reformed through EU integration and foreign investment, as demonstrated by many Central and Eastern European nations. However, the financial challenges faced by emerging markets, especially the limited flow of capital from richer nations, have often slowed their progress.
In recent years, the division between emerging and advanced economies has become less relevant. Emerging markets, with their increasing global integration, now play a crucial role in global economic stability. They also have a strong interest in the multilateral system, which has supported their growth through open trade, capital flows, and international cooperation. Many emerging markets have already taken leadership positions within the G20, focusing on priorities like innovation, infrastructure, female empowerment, and green development.
International institutions, such as the IMF, must continue to engage with and support emerging markets by tailoring policy advice and lending tools to their specific needs. These economies are essential allies in addressing global challenges, and their growing role should be acknowledged in global governance. In an uncertain global economic environment, emerging markets will be crucial in shaping the future of multilateralism and sustaining global growth.
Emerging markets are no longer just developing economies—they are essential players in global growth and governance, driving innovation and policy reform. Their increasing importance highlights their potential to shape the future of the global economy.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
