A frontier market is a term for a type of developing country's market economy which is more developed than a least developed country's, but too small, risky, or illiquid to be generally classified as an emerging market economy. 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 (source: Wikipedia, read more). While they are smaller, less accessible, and somewhat riskier than more established markets, frontier markets are still investable. They are considered desirable by investors looking for substantial long-term returns because these markets have the potential to become much more stable and established over the course of decades. However, it is also possible for a more established, emerging market to regress to frontier market status; investing in these markets is still risky. Investors pursue frontier equity markets to seek potentially high returns. As many frontier markets do not have developed stock markets, investments are often private or direct in startups and infrastructure. Although it’s possible to achieve strong results from investing in frontier markets, investors must also accept higher risks than in the United States or Europe, for example (or any other of the G7 nations). Some of the risks investors face in frontier markets are political instability, poor liquidity, inadequate regulation, substandard financial reporting, and large currency fluctuations. In addition, many markets are overly dependent on volatile commodities (Source: Investopedia, read more...).
