‘Emerging Markets’ is obsolete: India, Taiwan and South Korea no longer fit neatly in the same box

Once, the financial world looked simple. Rich countries had developed markets. Developing countries with reasonably sophisticated stock markets were christened 'emerging markets'. Those further behind became 'frontier markets'. This 3-rung ladder was never entirely satisfactory. Today, it is positively misleading.

The term 'emerging markets' was popularised by the International Finance Corporation in the 1980s. It proved a marketing triumph. Fund managers created emerging-market funds and indices like MSCI. Investment banks created emerging-market departments. Investors began treating dozens of radically different countries as one asset class.

Also Read: Après le Déluge, a case study: France’s debt crisis is exposing deeper cracks in the global economy


Goldman Sachs took packaging to an inspired new level in 2001. Its economist Jim O'Neill coined 'BRIC' for Brazil, Russia, India and China. The catchy acronym became a Wall St joke but, unexpectedly, morphed into a political grouping seeking new global institutions not dominated by the West.

What exactly is an emerging market today? Consider Taiwan. It is one of Asia's richest economies and, through TSMC, dominates production of the world's most advanced semiconductors. Its stock market is large, liquid and technologically sophisticated. Yet, MSCI calls Taiwan an 'emerging market'.

South Korea presents an even greater absurdity. It is a high-income economy boasting Samsung, Hyundai and SK Hynix. Yet, MSCI calls it 'emerging', partly because of foreign-investor accessibility and market practices.

FTSE Russell - an offshoot of London Stock Exchange - disagrees. It calls South Korea 'developed'. So, has South Korea emerged or not? Apparently, that depends on which index provider you ask. If two leading index compilers cannot agree whether one of the world's biggest, most sophisticated markets is developed or emerging, perhaps the problem is not South Korea. Perhaps it's the taxonomy.

Also Read: France student protest and India's CJP movement share one demand: Young people want to be heard, not policed

Bulgaria joined the EU in 2007 and adopted the euro in January 2026. Yet, FTSE classifies Bulgaria as a frontier market. MSCI classified it even lower, as a 'standalone market'. Lots of subjectivity here.

India has a much lower per-capita income than South Korea or Taiwan. But it has one of the world's biggest stock markets, sophisticated exchanges, enormous derivatives markets, world-class electronic trading and a vast domestic investor base. All three are put in the same basket as tiny Colombia and Egypt, which MSCI also calls emerging markets.

Investors need a more informative map. For convenience, markets might be grouped into 5 broad clusters:

Deep mature markets Large, liquid and highly accessible - the US, Japan, Britain, Germany, France, Canada and Australia.

Large sophisticated markets with significant access or institutional frictions India, Taiwan, South Korea and China. They have scale, major corporations and sophisticated trading but differ greatly in capital controls and foreign accessibility.

Developing liquid markets Economies like Brazil, Mexico, Indonesia, Thailand, Malaysia and South Africa. They have meaningful liquidity and sound infrastructure but lack the scale and depth of the giants.

Small or specialised markets Countries such as Bahrain, Iceland and Oman. They may be well regulated but are too small or concentrated to compare sensibly with Tokyo, Mumbai or Seoul.

Shallow or restricted markets These include Bangladesh, Pakistan and Sri Lanka, where liquidity, forex restrictions or institutional weaknesses constrain investors.

But these 5 categories must not become new tablets handed down from Mount Sinai. That would merely replace one rigid taxonomy with another. Maybe countries should belong to more than one category. Better still, accompany broad categories with a scorecard covering size, free float, turnover, foreign accessibility, currency convertibility, settlement, institutional quality, corporate diversity and concentration.

Taiwan could rank very high on size, liquidity, technology and systemic importance but lower on diversification. South Korea could rank high on sophistication but less well on some accessibility criteria. India could rank extremely high on size, liquidity and trading infrastructure, while retaining capital-account restrictions.

But investors like simplicity, even if that has shortcomings. Not everybody wants to digest 20 indicators before buying an ETF. But simplicity becomes the work of a simpleton when differences within a category exceed differences between categories. It is time for change.

The old terminology creates the illusion that markets travel along one financial escalator: frontier today, emerging tomorrow, developed the day after. They don't.

The term 'emerging markets' is obsolete. Wall St needs to come up with a better classification of countries.