Country Classifications: Developed versus Emerging Markets
Financial markets around the world are categorized into one of three categories:
- Developed markets
- Emerging markets
- Frontier markets
The categorization process is performed by four of the largest index providers: S&P, MSCI, FTSE and NASDAQ. Each index provider has a different set of rules to perform the categorization process. As a general rule, one of the biggest factors is the gross domestic product per capita of each country. But the index providers will also look at health measures like the average life expectancy, plus financial market metrics like the average volume of trades. The four index providers generally re-evaluate each country on an annual basis. So every couple of years, a country will get promoted or demoted from one category to another.
For the most part, the four index providers end up ranking each country in the same category, but from time to time, there are differences. For example, South Korea is classified as a developed market by FTSE Russell but remains in the emerging markets category according to MSCI — this is one of the most significant classification disagreements among index providers.
It's important to note that market classification can change not only due to economic development but also due to geopolitical events. For example, in March 2022, MSCI and FTSE Russell removed Russian securities from all their indexes after the Russian equity market was deemed "uninvestable" following international sanctions. Russia was reclassified from Emerging Markets to Standalone Markets status at a price that was effectively zero.
This system was largely devised as way for investors to build investment portfolios. The belief is that as a group, the stock markets in the developed markets and emerging markets will tend to move closely together. And as a group, these stock markets at times perform quite a bit differently than the U.S. stock market.
Frontier markets are those markets in still developing countries that lack sufficient infrastructure and other requirements to be considered an emerging market. Most U.S. investors are afraid to devote too much of their portfolio to a stock market in a frontier market. So it can be a big deal for a country to get promoted from a frontier market to an emerging market.
When most investors think about "developed market" stocks, they tend to think of developed markets other than the U.S. The most common index that follows developed markets is the MSCI EAFE Index, which actually tracks all developed markets excluding the US and Canada. EFA is an iShares ETF that tracks the MSCI EAFE Index and has been around forever.
In broad strokes, if you look at the total market capitalization of the world's stock markets, the U.S. makes up approximately 49-50% (reaching a record share in 2024), the developed markets ex-US about 25-30%, and emerging market and frontier market stocks about 10-15%. These percentages fluctuate based on relative market performance.
Developed markets
These are the financial markets in the United States, Canada, Japan and most of the countries in Western Europe:
| Country | Largest ETF |
|---|---|
| Australia | EWA |
| Austria | EWO |
| Belgium | EWK |
| Canada | EWC |
| Denmark | EDEN |
| Finland | EFNL |
| France | EWQ |
| Germany | EWG |
| Hong Kong | EWH |
| Iceland | |
| Ireland | EIRL |
| Israel | EIS |
| Italy | EWI |
| Japan | EWJ |
| Luxembourg | |
| Monaco | |
| New Zealand | ENZL |
| Norway | NORW |
| Portugal | PGAL |
| Singapore | EWS |
| South Korea* | EWY |
| Spain | EWP |
| Sweden | EWD |
| Switzerland | EWL |
| The Netherlands | EWN |
| United Kingdom | EWU |
| USA | SPY |
*Note on South Korea: South Korea is classified as a developed market by FTSE Russell but remains in the emerging markets category according to MSCI. South Korea has been in the MSCI Emerging Markets index since 1992 and has struggled to gain developed market status due to concerns about currency convertibility and market accessibility. Korean authorities continue to push for MSCI developed market status, with potential upgrades dependent on foreign exchange market reforms.
Emerging markets
Emerging markets include many of the so-called "BRICS+" countries – Brazil, India, China, South Africa, and more recently Egypt and the United Arab Emirates, plus about 15 other countries. Note that the BRICS political bloc has expanded significantly since 2024 to include additional members (Egypt, Ethiopia, Iran, UAE, Indonesia), but not all BRICS member countries are included in investable emerging market indexes. For example, Russia was removed from all major indexes in 2022, and some newer members like Iran and Ethiopia lack sufficient market infrastructure to be included in major emerging market benchmarks.
| Country | Largest ETF |
|---|---|
| Brazil | EWZ |
| Cayman Islands | |
| Chile | ECH |
| China | FXI |
| Colombia | GXG |
| Czech Republic | |
| Egypt | EGPT |
| Greece | GREK |
| Hungary | |
| India | INDA |
| Indonesia | EIDO |
| Kuwait | KWT |
| Malaysia | EWM |
| Mexico | EWW |
| Peru | EPU |
| Philippines | EPHE |
| Poland | EPOL |
| Qatar | QAT |
| Saudi Arabia | KSA |
| South Africa | EZA |
| South Korea* | EWY |
| Taiwan | EWT |
| Thailand | THD |
| Turkey | TUR |
| United Arab Emirates | UAE |
*South Korea is classified as Emerging Market by MSCI but as Developed Market by FTSE Russell.
These countries make up the vast majority of emerging market stock market capitalization. There are a few other small countries that we have not included in this list.
There are two giant ETFs that have been around a long time that are synonymous with "emerging market" ETFs: VWO and EEM.
Note that VWO (which tracks a FTSE index) excludes South Korea, while EEM (which tracks an MSCI index) includes South Korea with approximately 10-12% weighting. This difference can significantly impact performance comparisons between the two ETFs.
So you can see the approximate weighting of each country, let's look at VWO. VWO follows the FTSE Emerging Markets All Cap China A Inclusion Index. The FTSE Emerging Markets All Cap China A Inclusion Index weights the countries approximately as follows:
- China ~30% (fluctuates; peaked at ~40% in late 2020)
- India ~23%
- Taiwan ~20%
- Brazil ~5%
- Saudi Arabia ~4%
- South Africa ~3%
- Thailand ~2%
- Malaysia ~2%
- Mexico ~2%
- Indonesia ~2%
- United Arab Emirates ~1.5%
- Turkey ~1%
- Others ~4%
Note: Weights change frequently based on market performance. Check the fund's current holdings for the most up-to-date allocations.
As you can see from the above numbers, the largest emerging market countries (China, India, Taiwan, and Brazil) make up a significant portion of most emerging market indexes. China, India, and Brazil together typically account for 55-60% of emerging market index weight.
Frontier markets
These are still developing countries:
| Country | Largest ETF |
|---|---|
| Argentina | ARGT |
| Bahrain | |
| Bangladesh | |
| Cyprus | |
| Jamaica | |
| Jordan | |
| Kazakhstan | |
| Kenya | |
| Mauritius | |
| Morocco | |
| Nigeria | NGE |
| Oman | |
| Pakistan | PAK |
| Romania | |
| Senegal | |
| Sri Lanka | |
| Uruguay | |
| Vietnam | VNM |
Recent Classification Changes
Market classifications are constantly evolving. Some notable recent changes and developments include:
- Russia (2022): Removed from all major emerging market indexes and reclassified as a Standalone Market following international sanctions related to the invasion of Ukraine. Russian securities were removed at effectively zero value.
- Kuwait (2020): Upgraded from Frontier to Emerging Market status by MSCI, following earlier upgrades by FTSE (2018) and S&P (2019).
- Greece: Currently classified as Emerging Market by MSCI but has made significant progress toward meeting Developed Market standards for European markets. Greece meets the economic development criteria for Developed Markets.
- South Korea: Remains an Emerging Market by MSCI despite being classified as Developed by FTSE Russell. Korean authorities continue to push for MSCI developed market status, with reforms focused on foreign exchange market accessibility and currency convertibility.
Last updated: February 2025