Defining emerging markets

WHAT COUNTS AS an emerging market? Broadly speaking, an economy that is not too rich, not too poor and not too closed to foreign capital. The term was coined by Antoine van Agtmael in 1981 when he was working for the International Finance Corporation (IFC), a division of the World Bank. He hoped to create what he had named: a set of promising stockmarkets, lifted from obscurity, thereby attracting the investment they needed to thrive.

At the time, it was hard work even to compare the performance of stockmarkets in places like Brazil, India and South Korea. The IFC, having collected data on ten such markets, felt that foreign investors might take to these boondock bourses, but would be put off by the risk of investing in a single company or the trouble of diversifying across many firms and places. The answer, the IFC concluded, was to provide them with a one-stop, broadly representative “Third-World Equity Fund”. When Mr Agtmael pitched the idea to a group of fund managers at an event hosted by Salomon Brothers, some were sceptical, other intrigued. One liked the idea but hated the name. So Mr Agtmael spent the weekend dreaming up the term “emerging markets”, with which he hoped to evoke “progress, uplift and dynamism”. That label proved wildly successful.