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 press|url=http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/10-22-2007/0004686882&EDATE= |publisher=Standard & Poor's| date=2007-10-22|title=S&P Launches First Investable Index for Frontier Equity Markets] Subsequently, MSCI Barra began a rival frontier market index,cite press|url=http://www.mscibarra.com/products/indices/fm/MSCI_Frontier_Markets.pdf|publisher=MSCI Barra|date=2007-12-18|title=MSCI Frontier Markets Indices] and in early 2008, Deutsche Bank launched the first frontier market exchange-traded fund, on the London Stock Exchange.cite web|url=http://www.indexuniverse.com/sections/breaking-news/10/3708.html|publisher= Index Universe|last=Coleman|first=Murray|title= First Frontiers ETFs Open Overseas|date=2008-02-14]

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."

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:

1. flagicon| Bahrain "Bahrain"
2. flagicon| Bangladesh Bangladesh
3. flagicon| Bulgaria "Bulgaria"
4. flagicon| Cambodia Cambodia
5. flagicon| Cote d'Ivoire Cote d'Ivoire

   7. flagicon| Croatia "Croatia"
   8. flagicon| Cyprus Cyprus
   9. flagicon| Estonia "Estonia"
   10. flagicon| Georgia Georgia
   11. flagicon| Jordan Jordan
   12. flagicon| Kazakhstan "Kazahkstan"

       13. flagicon| Kenya "Kenya"
       14. flagicon| Kuwait "Kuwait"
       15. flagicon| Lebanon "Lebanon"
       16. flagicon| Lithuania Lithuania
       17. flagicon| Nigeria "Nigeria"
       18. flagicon| Oman "Oman"

           19. flagicon| Pakistan Pakistan
           20. flagicon| Qatar "Qatar"
           21. flagicon| Romania "Romania"
           22. flagicon| Slovenia "Slovenia"
           23. flagicon| Sri Lanka "Sri Lanka"
           24. flagicon| Tunisia "Tunisia"

               25. flagicon| Ukraine "Ukraine"
               26. flagicon| United Arab Emirates "United Arab Emirates"
               27. flagicon| Vietnam "Vietnam"

                   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.

                   ee also

                   * Developed market
                   * Emerging markets

                   References