Key terms for global investing

By: Sound Choices • August 13, 2019 • Personal Finance

Global investing is a catch-all phrase for investing in securities from around the world – but there is more to it than just that. Here are some of the different categories associated with global investing:

 

Global

Invest anywhere in the world including your home country.

International

Invest anywhere in the world except your home country. In Canada, that means both Canada and the United States.

EAFE1

The 21 Developed Markets in Europe, Australasia and the Far East:

Australia Austria
Belgium Denmark
Finland  France
Germany Hong Kong
Ireland Israel
Italy Japan
Netherlands New Zealand
Norway Portugal
Singapore Spain
Sweden Switzerland

United Kingdom

Developed Markets (DM)2

The countries whose markets are characterized by ease and efficiency of capital movement3 and have an average annual income greater than US$15,000.4 

Americas Europe & Middle East Pacific
Canada Austria Australia
United States Belgium Hong Kong
Denmark Japan
Finland New Zealand
France Singapore
Germany
Ireland
Israel
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom

Emerging Markets (EM)2

Emerging markets are classified using a number of different metrics and slightly differ among organizations.

The S&P Dow Jones Indices, for example, classify countries by looking at a number of criteria, including the size of the country’s domestic market capitalization, how freely its currency is traded and the country’s economy, specifically its income per capita, also known as Gross Domestic Product (GDP) per person.4

Canada, with its average income of US$45,0325 is one of the “developed” countries. Countries with income per capita of lower than US$15,000 are labelled “developing” or “emerging“.4

This helps explain why Brazil, China and India are on the list of the 10 biggest economies, but are still considered “emerging” – the size of their populations translate into a relatively low per capita income.

Morgan Stanley, on the other hand, in compiling its Emerging Markets Index, looks at the country’s economic development, size, liquidity and market accessibility:

Americas Europe & Middle East Asia
Argentina Czech Republic China
Brazil Egypt India
Chile Greece Indonesia
Colombia Hungary Korea
Mexico Poland Malaysia
Peru Qatar Pakistan
Russia Phillippines
Saudia Arabia Taiwan
South Africa Thailand
Turkey
United Arab Emirates

Frontier markets: the next “emerging” markets2

“Frontier” markets – just like EM countries – can be classified using a variety of criteria, but are generally countries with even lower income levels than the emerging market counties and considered less developed based on their economic level and liquidity. In this frontier phase, globally recognized regulatory authorities and administrations are often still in early development, which potentially leads to lower levels of transparency, shareholder and corporate governance.

Europe & CIS Africa Middle East Asia
Croatia Kenya Bahrain Bangladesh
Estonia Mauritius Jordan Sri Lanka
Lithuania Morocco Kuwait Vietnam
Kazakhstan Nigeria Lebanon
Romania Tunisia Oman
Serbia WAEMU6
Slovenia

 


To learn more about global investing, read "Why go global" and talk to your financial advisor.


 

 

1 Source: https://www.msci.com/eafe. DM countries of Australasia = Australia, New Zealand. DM countries of the Far East = Hong Kong, Japan and Singapore.

2 Source: https://www.msci.com/market-classification

3 The transfer of capital between countries either by the import or export of securities, dividend payments or interest payments. For instance, when Japanese investors purchase American securities, the payment will be in dollars. Hence, a demand for the dollar is created, necessitating an increase in the dollar's exchange rate. Read more: http://www.investorwords.com/15286/capital_movements.html#ixzz5CZIlxe69

4 Average income as calculated by the size of its economy divided by its population (GDP per capita income). Source: “Country Classification Methodology,” SP& Dow Jones Indices, released August 2018.

5 Source: https://data.worldbank.org/indicator/ny.gdp.pcap.cd, 2017 data, sourced April 4, 2018.

6 WAEMU = West African Economic and Monetary Union. Member states are Benin, Bissau Guinea, Burkino Faso, Ivory Coast, Mali, Niger, Senegal and Togo. Source: http://www.uemoa.int/ sourced June 26, 2019.


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