Frontier markets
The term frontier markets is commonly used to describe the equity markets of the smaller and less accessible, but still "investable", countries of the developing world. The frontier, or pre-emerging equity markets are typically pursued by investors seeking high, long-run return potential as well as low correlations with other markets. The implication of a country being labeled as frontier, or pre-emerging, is that the market will begin to develop similar levels of liquidity and exhibit similar risk and return characteristics to that of the more traditional emerging markets.
Terminology
The term began use when Standard and Poor's began to track a frontier market index in 1996, but gained wider awareness in October 2007, with S&P launching 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 countries)Cite error: The opening <ref> tag is malformed or has a bad name (see the help page).. Subsequently, MSCI Barra began a rival frontier market index, and in early 2008, Deutsche Bank launched the first frontier market exchange-traded fund, on the London Stock Exchange[1].
Frontier markets are countries that are considered to be neither developed markets, nor emerging markets, which "demonstrate a relative openness to and accessibility for foreign investors," and not under "extreme economic and political instability."[2]
Members could be considered to roughly fall 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 emerging markets (such as Kenya or Vietnam).
List of countries
The countries represented in the initial S&P Select Frontier 150 index were:
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Pakistan and the United Arab Emirates had the largest and second largest weights of the index with 28.97% and 23.12% respectively.
Countries shown in italics are also represented in the debut MSCI Frontier Market Index, which also included Mauritius. MSCI considers Colombia, Jordan and Pakistan to be emerging markets, and includes them in that index instead.
See also