Frontier market

A frontier market is a type of developing country which is more developed than the least developing countries, but too small to be generally considered an emerging market. The term is an economic term which was coined by International Finance Corporation’s Farida Khambata in 1992. The term 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. Some frontier market countries were emerging markets in the past, but have regressed to frontier status.

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. 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 . 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."

Members could be considered to fall roughly into three groups:

The term pre-emerging markets is sometimes used as a synonym for "frontier markets", emphasizing the expectation that they will eventually "graduate" to "emerging market" status.

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.

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