Developed Market

Developed markets include countries such as the United States, the United Kingdom, Japan, Canada, Australia and most of Western Europe. Index providers classify countries based on economic development, market size and liquidity, openness to foreign investment and the efficiency of trading and settlement systems.

Developed markets are generally seen as less risky than emerging markets. Their companies tend to follow stricter reporting standards, their legal systems protect shareholders more reliably, their currencies are often more stable and their markets are highly liquid.

For example, a global equity index might allocate most of its weight to developed markets, reflecting the size and depth of their stock markets, with a smaller portion in emerging markets.

The trade-off is that developed economies usually grow more slowly than emerging ones. However, many large companies in developed markets earn substantial revenue from emerging economies, so investing in developed markets still provides some exposure to global growth.

Classifications can change. Countries can be upgraded from emerging to developed status as their economies and markets mature, or downgraded if conditions deteriorate.