Developed vs Emerging Market equities - what's the difference?

Market classifications

Investment index providers commonly group countries into categories such as Developed Markets and Emerging Markets.

The classification is not simply a ranking of which countries are rich or poor. Providers consider factors such as market size, liquidity, accessibility to international investors, settlement systems and the wider institutional environment.

Developed Markets

Developed markets generally have mature capital markets, substantial liquidity and well-established market infrastructure.

Examples often include countries such as the United States, United Kingdom and Japan, although classifications are determined by the relevant index provider.

Emerging Markets

Emerging markets are economies whose capital markets are developing but do not meet every criterion used for developed-market classification.

They may offer exposure to different demographics, industries and economic growth patterns.

They can also involve additional risks, including:

• currency movements

• political or regulatory change

• lower market liquidity

• different corporate governance standards

• greater market volatility

Why hold both?

Developed and emerging markets do not always move in the same way. Combining different regions can broaden diversification, although diversification cannot guarantee against losses.

A Shariah-compliant fund will usually apply its Shariah screening methodology after defining the geographic investment universe.

This guide is general education, not personal financial advice.