Emerging Market Economies

All across the world, new markets are emerging in developing economies. An emerging market is a nation’s economy that is progressing toward becoming more advanced, by means of rapid growth and industrialization. The expansion of markets are important because they become integral in global manufacturing. Another benefit to these is that they are enjoying booming export business. The emerging markets gain global presence, and in turn they get cross-border trade and have loose monetary policies. Most of these emerging markets come from Asia, Africa, and Latin America, which are less developed, while the developed world like North America and Western Europe are established markets. ( Emerging Market Economy)

These markets are helping countries progress, but it is pressuring the global financial sector. The emerging markets demand a lot of capital, and this puts a strain on interest rates. There are many companies building machines, and there are new roads, power systems, along with more public infrastructure that contributes to the urbanization of the countries. All of these heavy expenses have people worried about what it will do to the global financial system. “The McKinsey Global Institute’s (MGI) recent analysis finds that by 2030, the world’s supply of capital—that is, its willingness to save—will fall short of its demand for capital, or the desired level of investment needed to finance all those projects.” (Dobbs) As the demand for capital increases, the supply that is actually available is creating a gap between the two. This gap could lead to a few dilemmas “upward pressure on real interest rates, crowd out some investment, and potentially act as a drag on growth. Moreover, as patterns of global saving and investment shift, capital flows between countries will likely change course, requiring new channels of financial intermediation and policy intervention” (Dobbs) This is important because the implications of these financial markets are wide ranging from business executives, financial institutions, and policy makers. It will force companies to change their spending styles and making new decisions in regards to their finances. Emerging markets have much more volatile stocks, they can come crashing down from rising interest rates or inflation, for example. However, these stocks can still soar and pay off with high returns. These markets are key forces in pushing forward the global economy, they create new places for trade and are advancing technology to bring their countries up to speed. It is good for the countries to become more developed, both for the people and for the world. However, it is putting a strain on the world because of the high capital demands and the volatility of investing in them is a tough decision to make. As these countries continue to grow, it is going to force tough financial decisions and new adaptations. 

I always knew that third world countries were working towards urbanization, but I never knew how much it would effect the global economy financially. I found out this issue from researching the internet looking around for financial dilemmas in the world today, and when I came across this, I was intrigued by how big of a topic this has become, which led me to reading different analytical articles about the markets and their potential impact in the future. 

After researching the emerging markets and its importance, I see that this is something that is going to happen no matter what, but it will be important for the financial markets to pay attention to the capital funds available to invest and make smart decisions about buying stock in these markets. I still have a few questions though that only time will tell, I wonder if there is going to have to be an agreement made between governments on the funding of these things, and I also wonder about where they will get the money from when it gets to around 2030 and funds may be short in supply. I also am curious as to how the global financial market is going to react and adjust to this new time period, will it boom or bust?

Grant Williams

Dobbs, Richard, et al. “How the Growth of Emerging Markets Will Strain Global Finance.” McKinsey&Company, Dec. 2010, www.mckinsey.com/global-themes/winning-in-emerging-markets/how-the-growth-of-emerging-markets-will-strain-global-finance.

“Emerging Market Economy.” Investing Answers, InvestingAnswers, 2017, www.investinganswers.com/financial-dictionary/world-markets/emerging-market-economy-1518.

“Emerging Markets, Interest Rates and Tapering.” TheBusinessArticles.com, 6 Apr. 2017, thebusinessarticles.com/emerging-markets-interest-rates-and-tapering/. (Image Credit)