Frontier markets
Encyclopedia
Frontier Markets is an economic term which was coined by International Finance Corporation
’s Farida Khambata in 1992. It is commonly used to describe a subset of emerging markets
(EMs).
Frontier markets (FMs) are investable but have lower market capitalization and liquidity than the more developed emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets.
The implication of a country being labeled as frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.
launched the first frontier market exchange-traded fund, on the London Stock Exchange
.[3]
Frontier markets are a sub-set of emerging markets, which have market capitalizations that are small and/or low annual turnover and/or market restrictions unsuitable for inclusion in the larger EM indexes but nonetheless "demonstrate a relative openness to and accessibility for foreign investors" and are not under "extreme economic and political instability."[2]
Members could be considered to fall roughly into three groups:
• Small countries of relatively high development level (such as Estonia) that are too small to be considered emerging markets,
• Countries with investment restrictions that have begun to loosen as of the mid 2000s (such as the countries of the Gulf Cooperation Council)
• Countries at a lower development level than the existing “mainstream” emerging markets (such as Kenya or Vietnam).
The implication of a country being labeled as Frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.
Emerging market / frontier investors say investing in frontier assets would actually diversify and reduce risk, which contradicts the general notion that risk would be added by including those markets .
Argentina, 
Bahrain, 
Bangladesh, 
Botswana, 
Kingdom of Bulgaria, 
Côte d'Ivoire, 
Independent State of Croatia, 
Cyprus, 
Estonia, 
Jordan, 
Kenya, 
Lithuania, 
Republic of Macedonia, 
Malta, 
Mauritius, 
Nigeria, 
Oman, 
Qatar, 
Kingdom of Romania, 
Serbia, 
Slovakia, 
Slovenia, 
Sri Lanka, 
Tunisia, 
Vietnam.
The following countries are currently not included in MSCI Frontier Markets Index, and adding them to this list - is still under consideration (as of May 2010):
classified the following 37 countries as frontier markets:
Jordan, Qatar and the 
United Arab Emirates are being considered for a possible upgrade to emerging.
International Finance Corporation
The International Finance Corporation promotes sustainable private sector investment in developing countries.IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States....
’s Farida Khambata in 1992. It is commonly used to describe a subset of emerging markets
Emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
(EMs).
Frontier markets (FMs) are investable but have lower market capitalization and liquidity than the more developed emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets.
The implication of a country being labeled as frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.
Terminology
The term began use when the IFC Emerging Markets Database (EMDB), led by Farida Khambata, began publishing data on smaller markets in 1992. Khambata coined the term “Frontier Markets” for this set of indices. Standard and Poor's bought EMDB from IFC in 1999 and in October 2007, S&P launched the first investable index, the Select Frontier Index (30 of the largest companies from 11 countries) and the Extended Frontier Index (150 companies from 27 countries0.[1] Subsequently, MSCI Barra began a rival frontier market index,[2] and in early 2008, Deutsche BankDeutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
launched the first frontier market exchange-traded fund, on the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
.[3]
Frontier markets are a sub-set of emerging markets, which have market capitalizations that are small and/or low annual turnover and/or market restrictions unsuitable for inclusion in the larger EM indexes but nonetheless "demonstrate a relative openness to and accessibility for foreign investors" and are not under "extreme economic and political instability."[2]
Members could be considered to fall roughly into three groups:
• Small countries of relatively high development level (such as Estonia) that are too small to be considered emerging markets,
• Countries with investment restrictions that have begun to loosen as of the mid 2000s (such as the countries of the Gulf Cooperation Council)
• Countries at a lower development level than the existing “mainstream” emerging markets (such as Kenya or Vietnam).
Investment Case
Frontier Markets have lower market capitalization and liquidity than the more developed, "traditional" emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets.The implication of a country being labeled as Frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.
Emerging market / frontier investors say investing in frontier assets would actually diversify and reduce risk, which contradicts the general notion that risk would be added by including those markets .
FTSE list
FTSE classification, as of September 2010 frontier markets list: Argentina, Bahrain, Bangladesh, Botswana, Kingdom of Bulgaria, Côte d'Ivoire, Independent State of Croatia, Cyprus, Estonia, Jordan, Kenya, Lithuania, Republic of Macedonia, Malta, Mauritius, Nigeria, Oman, Qatar, Kingdom of Romania, Serbia, Slovakia, Slovenia, Sri Lanka, Tunisia, Vietnam.MSCI list
As of May 2009, MSCI Barra classified the following 26 countries as frontier markets:The following countries are currently not included in MSCI Frontier Markets Index, and adding them to this list - is still under consideration (as of May 2010):
Standard & Poor's list
As of April 29, 2011, Standard & Poor'sStandard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
classified the following 37 countries as frontier markets:
Jordan, Qatar and the United Arab Emirates are being considered for a possible upgrade to emerging.See also
- Developed marketDeveloped marketIn investing, developed markets are those countries that are thought to be the most developed and therefore less risky.-FTSE Group's list:FTSE Group, a provider of economic and financial data, assigns the market status of countries as Developed, Advanced Emerging, Secondary Emerging or Frontier on...
- Emerging marketsEmerging marketsEmerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
- Stock exchanges of developing countries