What are emerging markets? The term has been with us for a quarter of a century, during which many countries have seen fevered development, and in which the “emerging markets” as an asset class have outperformed the developed world.

But with recent successes for emerging markets investing, definitions of the sector have begun to fragment. At one end of the spectrum, there is the vogue for BRIC (Brazil, Russia, India and China) investing, initially championed five years ago by Goldman Sachs. As far as Goldman Sachs is concerned, investing in these disparate countries, singled out for the global influence their size should give them, is “not really emerging markets investing”. They are too inter-connected with the developed world.

At the other end of the spectrum, there is growing interest in what are now called “frontier” markets – so-called because it is not even clear that they yet deserve to be called “emerging”. These have the growth potential originally seen in the first emerging markets in the early 1980s, and almost certainly hide some bargains because they are under-researched. Hence hedge funds have taken to scouring through sub-Saharan Africa.

So, how do we define an “emerging market”? The term was coined, the literature seems to agree, in the early 1980s by Antoine van Agtmael, who was then working for the World Bank’s International Financial Corporation. The term was defined in terms of economics and levels of wealth. “Emerging markets” were economies with low-to-middle per capita income.

It quickly came to be understood that “emerging” markets also needed to boost their growth, open their markets, and embark on structural reform. Thus for years the term was synonymous with the Asian “Tiger” economies.

To all practical intents and purposes, the arbiter of emerging markets is now Morgan Stanley Capital International, whose indexes are used as benchmarks by some 90 per cent of emerging markets managers. This gives the MSCI huge influence over where flows of money are directed. It favours countries with a dynamic corporate sector and good economic growth.

The MSCI Emerging Markets index bears testament to the success of the Asian tigers. Korea and Taiwan between them account for almost 30 per cent.

As a region, Asia accounts for 52 per cent of the index, while Latin America, victim of a succession of “lost decades”, makes up slightly less than 20 per cent. The BRICs account for 37.5 per cent of the index, so the recent fad for BRIC funds has dramatically increased the money flowing towards these markets.

There are a few markets that most investors would consider adventurous. Morocco, Jordan and Pakistan, the three smallest, add up to less than 1 per cent of the index between them.

Beyond index providers, ratings agencies also have huge power over emerging markets. Ratings also rest on slightly different criteria. The ratings agencies like economic growth, as this makes it easier for governments to pay their debts, but a country does not have to grow fast to be deemed safe for lenders. Rather it needs to show stability and strong legal institutions.

Standard & Poor’s list of investment-grade countries has some interesting variations from the MSCI list. Mexico, Korea and Malaysia make the cut, as do various strong commodities-based economies, such as Chile. Most of Eastern Europe is investment grade, as are some more unlikely names such as Tunisia.

Among the BRICs, Brazil and India are still not in the investment-grade club. For all the economic clout of these two countries, neither is considered a better credit than El Salvador.

So it is also difficult to see how BRIC investing can yet be separated from emerging markets as an asset class.

How do all these countries fit into your portfolio? Again, they are beginning to align into some surprising categories,

There are two advantages to the emerging asset class: they grow more over the long term (the MSCI has gained more than 600 per cent since 1988, beating the S&P 500 by 200 percentage points), and they are not correlated with developed markets.

Cliff Quisenberry, who manages emerging markets equities for Eaton Vance funds in the US, points out that globalisation has changed the degree to which these markets correlate with the developed world, and with each other. Brazil, like other Latin American countries, is now more closely correlated with the US, and has a correlation of 0.7 with the S&P – in other words, 70 per cent of moves in Brazilian stocks can be explained by moves in the S&P.

The correlation for the other BRICs is only 0.4 – a figure that suggests they are still part of the emerging markets rather than the globalised mainstream.

“Pioneer” economies such as Botswana, Kenya, or Bangladesh exhibit very low correlations with each other, and with the developed markets. Local factors still predominate.

But these markets, defined as the bottom 5 per cent by market value of the 56 countries that make up the broadest emerging market indexes, have gained almost twice as much as the larger emerging economies over the last decade, and they have done it with lower volatility.

It is hard to say that the BRICs are no longer emerging markets.

But in spirit, perhaps true emerging market investing is now to be found at the frontier.

john.authers@ft.com