Emerging economies have become an integral part of the world market in spite of their obvious drawbacks. They were considered good investment diversifiers for mutual funds and pension funds. But the test to qualify for investment has become tougher now with the California Public Employees' Retirement System's new country review that decides the investability of emerging markets.

California Public Employees' Retirement System (CalPERS), the world's largest pension fund managing assets to the tune of $150 bn has initiated a new permissible country review mechanism so as to decide the "investability" of different countries. The review, which focuses on emerging economies, tries to assess each country based on certain parameters. This is the first ever such review undertaken by a public pension fund and is only a indication as to the extent of research asset management companies are willing to undertake to ensure that their investments are risk-free. This country review has found some preferred investment destinations while some others have been banned. India along with Pakistan, China, Colombia, Egypt, Indonesia, Jordan, Malaysia, Morocco, the Philippines, Russia, Sri Lanka, Thailand and Venezuela falls in the second category of "unacceptable investment destinations".

The phrase "Emerging markets", coined by Antoine W van Agtmael, an employee of the World Bank's International Finance Corporation in 1981, has become commonplace today. It refers to those nations, which have already set the process of development in motion but are yet to evolve into fully developed countries. The World Bank defines emerging market as a low or middle-income (below $9,300 per capita GNP as per 1999) economy, regardless of its particular stage of development. Around 49 countries spread across various continents form the group. While all these markets are emerging markets their investability is open to question.

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