Growth in Frontier Markets is outpacing most developed markets and many of the emerging markets. Though the are less liquid and somewhat more volatile than Emerging markets, their investment merits are superior and they may offer above average investment growth and lower correlations to existing investment asset classes. Though they remain small in terms of capitalization, most Asian Frontier markets offer investors a higher sustainable growth opportunity through supportive economic, monetary, and fiscal policies by local governments.
- Frontier markets represent those economies that are smaller and less liquid than the more advanced emerging markets. They are often considered a subset of those economies defined as emerging markets. Frontier economies are differentiated from their bigger developing market brethren by the following more acute risk characteristics; political instability, poor investment liquidity, inadequate financial regulation, weak corporate legal infrastructure, substandard financial reporting, as well as larger currency fluctuations.
- Frontier markets exist in all the corners of the globe with country representations in South America, Middle East, Africa, and Asia.
- Total global stock markets valuations represent roughly 70% of global GDP. South Asian Frontier market capitalizations represent roughly 20% of the total GDP in the region.
- Roughly half of the nearly 120 stock markets worldwide representing nearly one third of the world population can be classified as frontier markets.
- Growing demand for cheaper labor and access to new sources of raw materials, coupled with a search for higher investment returns has led to surging interest in frontier markets.
- Frontier markets have historically displayed modest correlation to both developed and emerging market indices. It can be inferred that the global economic forces may not influence the frontier economies to the same extent as the more interconnected developed markets.