Emerging Markets

Emerging markets are the countries that an index provider places between its developed and frontier categories: markets large and accessible enough for international investors to buy, but not yet meeting the provider's standard for a developed market. The phrase describes the market rather than the economy, so it is a judgment about trading, settlement, custody and openness as much as about wealth or growth.

There is no definition to look up, and this is the fact everything else on this page follows from. The Securities and Exchange Commission uses the phrase once on its international investing page, noting "the potential for growth in some foreign economies, particularly in emerging markets," and never defines it, and its investor glossary has no entry for it. What exists instead are competing commercial classifications published by index providers, each of whom decides for itself, and a fund's answer to "is this an emerging market?" is whichever provider's index it tracks.

Two of the largest providers disagree, and the disagreement is large enough to change what a fund holds. MSCI classifies markets as Developed, Emerging or Frontier. FTSE Russell uses four tiers: Developed, Advanced Emerging, Secondary Emerging and Frontier, with the middle two together forming its emerging universe. That structural difference alone means the categories are not translatable.

The substantive disagreement is bigger than the structural one. MSCI's Emerging Markets index covered 24 countries as of its 31 July 2026 factsheet. Three of them sit outside FTSE Russell's emerging tiers entirely, according to FTSE's classification table published 7 April 2026: South Korea and Poland are Developed, and Peru is Frontier. South Korea is not a rounding difference. It is the third-largest country weight in the MSCI index at 20.33%.

So two funds, both honestly labeled emerging markets, both tracking a reputable index, can differ by a fifth of the portfolio and by the presence or absence of a developed Asian economy, purely because of whose classification they follow. The reader's practical takeaway is to check which index a fund tracks rather than what the fund is called.

What the classification actually measures. FTSE Russell publishes its criteria, and the reasoning it gave for promoting Greece to Developed status is a useful window into them: Greece met the twenty-two FTSE Quality of Markets criteria, met minimum investable market capitalization and securities count requirements, held a Gross National Income per capita rating of "High", and carried a Credit Worthiness rating of "Investment" grade from the three primary credit rating agencies with a "Positive" or "Stable" outlook. Notice what is on that list and what is not. Market infrastructure, market size, national income and creditworthiness are on it. Expected growth is not. A country is not classified as emerging because it is growing quickly.

Classification moves, and the moves are announced in advance. FTSE Russell reviews classification annually each September with an interim review each March, and maintains a published Watch List so that markets under consideration are visible before anything changes. Its September 2025 review confirmed Greece moving from Advanced Emerging to Developed and Vietnam moving from Frontier to Secondary Emerging, both effective 21 September 2026, and its March 2026 interim review, published 7 April 2026, confirmed both and added Nigeria moving from Unclassified to Frontier on the same date. Vietnam's inclusion is to be phased in across multiple tranches beginning in September 2026 and concluding in 2027. An investor holding an index fund in this territory should expect the definition of what they own to change periodically, on a published schedule.

The category is far more concentrated than the name suggests. As of the 31 July 2026 MSCI factsheet, the index held 1,178 constituents across 24 countries and covered approximately 85% of the free float-adjusted market capitalization in each, restricted to large and mid-sized companies. Its country weights were Taiwan 26.63%, China 21.38%, South Korea 20.33% and India 11.66%, which is exactly 80% of the index in four countries, with Brazil at 4.15% and everything else making up the remaining 15.85%. By sector, information technology was 40.79%. Whatever a buyer believes they are getting exposure to, the largest part of it is Asian technology manufacturing rather than a broad cross-section of developing economies. Those figures move with markets and with reclassifications, and they should be read from a current factsheet rather than from any page that quotes them once.

The specific risks of holding shares outside the United States, from disclosure differences to currency movements to limits on legal remedies, are the same ones the SEC sets out for international investing generally, and they belong there rather than being restated here.

An index provider assesses each market against its own published criteria, places it in a tier, and builds indexes from the tiers. Fund managers license an index and hold its constituents. When a provider reclassifies a country, every fund tracking that provider's index buys or sells accordingly, usually on a schedule announced well in advance.

A hypothetical example of what the disagreement costs in practice. Devi puts $10,000 into a fund tracking an MSCI emerging markets index and $10,000 into a fund tracking an FTSE emerging index, believing she has diversified across two managers running the same strategy.

On the MSCI country weights as of 31 July 2026, South Korea was 20.33% of that index, so roughly $2,033 of her first $10,000 sits in South Korean companies (10,000 multiplied by 0.2033). FTSE Russell classifies South Korea as a Developed market, so it falls outside the FTSE emerging universe altogether and her second $10,000 holds none.

Across the $20,000 she holds about $2,033 in South Korea rather than the roughly $4,066 she would have holding $20,000 in the first fund alone. She has not diversified between two versions of the same thing; she has bought two different things and averaged them. Neither fund is mislabeled. All figures are illustrative and the weights change continuously.

Pros

• Covers economies and companies that a developed-markets index leaves out entirely, so it genuinely widens what a portfolio holds.
• The classification criteria are published, so an investor can see what a provider is measuring and when it plans to review it.
• Broad funds in this category hold over a thousand companies, which removes the risk that any single one matters much.
• Changes are signposted. FTSE Russell publishes a Watch List and announces reclassifications months before they take effect.

Cons

• There is no definition to look up, and two of the largest providers disagree about which countries qualify.
• The category is much more concentrated than its name implies. Four countries were 80% of the MSCI index and information technology alone was over 40% of it as of 31 July 2026.
• What a fund holds can change because a committee reclassified a country rather than because anything happened to the businesses.
• The MSCI index covers only large and mid-sized companies, so the smaller companies in those countries are outside it.
• All the risks of investing outside the United States apply, including currency movements, thinner disclosure and limits on legal remedies.