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Definition

An economy which is in a development phase - as opposed to a first-world economy which is said to be fully developed. Emerging economies generally enjoy more rapid growth than first world economies, but tend to suffer from greater political and economic instability. The BRICS economies - Brazil, Russia, India, China and South Africa have formed an alliance of emerging markets and established a joint bank to support member countries. Shocks to the world economy such as the COVID-19 pandemic and the crisis in Ukraine tend to impact currencies and share markets from emerging economies more than those of first world countries. South Africa is an emerging economy and its currency is one of the most liquid emerging market currencies. For this reason, the rand tends to feel the impact of developments in emerging markets, even it itself is not directly involved. Sentiment in the international investment community generally moves from "risk-on" when it is feeling secure to "risk-off" when it is scared. During periods of risk-off, emerging market assets tend to be sold in favour of more secure investments. This leads to a decline in emerging market currencies and especially the rand. The opposite is true when sentiment shifts to risk-on.

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