An emerging market economy is defined as an economy in transition from a less developed to a more economically advanced state. These economies are often characterized by strong economic growth, a unified currency, stock market, and banking system, and a gradual move toward industrialization. Due to their lack of established development, emerging market economies can pose risks for investors, as well as greater rewards.

Probably the most recognizable of emerging market economies, is the BRICS group, which is composed of Brazil, Russia, India, China, and South Africa. Despite the differences, individuals and companies in these countries share common traits—they all want to increase their wealth and buy goods and services at lower prices, ultimately driving economic growth and development.

Other major nations, such as Mexico, Indonesia, Thailand, Malaysia, and the Philippines, are also emerging market economies, while other countries such as Vietnam, Colombia, and Peru are on the same path.

The attractiveness of emerging market economies to innovative investors lies in their potential growth and heightened volatility. Investing in emerging market economies can magnify returns compared to those of developed markets, but carries with it complications and risks as well.

An emerging market economy also poses unique risks and challenges to international investors. These may include government interference, fiscal instability, currency issues, inadequate infrastructure, and volatile economic climates.

A successful investment strategy in an emerging market economy should consider all the risks. Investors should research the market, study macro and microeconomic factors, research company reports, review the performance of the securities, diversify their portfolios and have an understanding of the local market and culture.

Emerging markets require a smart and disciplined approach to investing, but for those willing to take the time to thoroughly understand the landscape, investing in these markets can result in superior returns as compared to more developed markets. This is especially true when taking part of the early growth of these economies. In addition, with emerging markets creating unique opportunities for innovative and forward-thinking investors, it’s no wonder why these markets are attracting increasing interest.