Definition
Frontier Markets
Frontier markets are the smallest and least developed investable economies, riskier and less liquid than emerging markets, examples include Vietnam, Bangladesh and Nigeria.
Sitting below emerging markets on the development ladder, frontier markets offer high growth potential but face thin liquidity, weak governance and large currency risk. India graduated past this stage long ago into the emerging-market category.
Global investors treat frontier markets as a high-risk, high-reward satellite allocation. They are less correlated with developed markets, offering diversification, but can be hard to enter and exit, with wide bid-ask spreads and capital controls.
Related terms
- Capital Account ConvertibilityCapital account convertibility is the freedom to convert local financial assets into foreign assets and back at market rates without restriction, which India only allows partially.
- Risk-On / Risk-OffRisk-on and risk-off describe market regimes: in risk-on, investors buy equities and emerging assets, while in risk-off they flee to safe havens like bonds, gold and the dollar.
- MSCI Emerging Markets IndexThe MSCI Emerging Markets Index tracks large- and mid-cap stocks across developing economies and is the benchmark most global EM funds follow.
- Emerging MarketsEmerging markets are developing economies with growing but less mature financial systems, offering higher growth and higher risk than developed markets; India is a leading example.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.