A mix of good and bad
Under the WTO’s self-identification regime, China classifies itself as a developing country. President Xi Jinping has even declared it will “always be a part of the developing world”.
This stance does not sit well with economic rivals such as the US. Lawmakers in Washington recently even introduced legislation intended to strip China of its EM standing.
Naturally, cynics might point to state-of-the-art metropolises such as Beijing and Shanghai and ask what is remotely 'developing' or 'emerging' about them. They might ask much the same about Indian tech hotbeds such as Bengaluru and Mumbai.
But these nations are comprised of much more than a handful of cutting-edge super-cities and global manufacturing centres. They are still home to a huge amount of poverty, especially in rural areas.
The World Bank has estimated 17.2 per cent of China’s population lived on less than $6.85 a day in 2023 – not a statistic worthy of a truly developed economy.
Similarly, 64 per cent of China’s population and 37 per cent of India’s population were reported to be living in urban areas in 2021. Yet each country has its own definition of 'urban', which further clouds the overall picture.
Investors must therefore accept EM status can be nebulous. It need not be interpreted as a cast-iron indication of a country’s investment prospects.
Rethinking risk
This is most notably the case in relation to risk. EMs have traditionally been regarded as significantly riskier than developed economies, but is this perception always warranted today?
The losses and divestment that followed Russia’s invasion of Ukraine underlined that some EM investments can still be extremely risky. In other instances, though, EMs might actually be seen as no riskier – maybe even less risky – than developed markets.
Take the automotive industry. China now makes more cars than any other country, is the top-selling manufacturer of electric vehicles and has established itself as a leading producer of EV batteries. Analysts at UBS have predicted that by 2030 one in five cars sold in Europe will be Chinese.
Twenty-five years ago, when everyone was buying mobile phones, you would have invested in Motorola and Nokia. Today, of course, Apple and Korea’s Samsung dominate the market.
But the top four Chinese phone manufacturers – Huawei, Vivo, Oppo and Xiaomi – now sell more units in China than Apple and are gaining a larger foothold in the UK and in Europe.
In one respect it does not matter which brand wins the battle of the smartphone. As the 'factories of the world', EM nations are home to remarkable picks and shovels investments that supply a variety of manufacturers.
