What’s the difference between emerging Markets and frontier Markets?
Frontier markets are a subset of emerging markets, but they lack a uniform definition. They generally consist of countries at an earlier stage of economic development, often with lower credit ratings and smaller, and they feature less developed and shallower capital markets. This category includes a diverse range of countries with varying economic profiles. A common characteristic of frontier Markets is that they are relatively overlooked even within the mainstream emerging market investor community. Additionally, these Markets often present unique challenges in analysis, with political factors playing a more significant role.
Economic and Political Stability
Emerging Markets generally exhibit greater stability compared to frontier Markets.
Movement of Capital
Emerging Markets are more open to foreign investment, resulting in greater capital flow in and out of these.
Risk and Liquidity
Emerging Markets tend to be more liquid and carry less risk compared to frontier Markets.
Breadth of Financial Instruments
Emerging Markets offer a wide range of financial instruments, including derivatives, while frontier Markets typically have fewer such instruments and less active Markets for them.
Key Takeaways
Emerging Markets
These are countries or transitioning towards developed status, often demonstrating efficiency and productivity as they unlock their full potential.
Frontier Markets
These developing countries do not meet the criteria for emerging Markets, leading to less effective capital Markets in terms of risk management, liquidity, and regulatory frameworks. Characteristics include country size, restricted Markets, development level, liquidity, and higher risk.
Competition Among Emerging
Emerging Markets compete to attract international businesses and trade as they strive to become developed nations.
Growth and Characteristics
Developing countries show significant economic and financial growth and exhibit some traits of developed.
Investment in Frontier Markets
These developing countries do not meet the criteria for emerging Markets, leading to less effective capital Markets in terms of risk management, liquidity, and regulatory frameworks. Characteristics include country size, restricted Markets, development level, liquidity, and higher risk.
Definition of Frontier Market
The term "frontier market" refers to developing Markets that have not yet reached the status of emerging Markets.