Difference between Emerging and Frontier Markets

Emerging Markets

Emerging markets are defined as a list of countries that are in the process of becoming developed economies. It includes the countries that used to be referred to as less economically developed countries by economists. These include the nations that do not have the economic strength of developed nations but are in the process of becoming developed economies.

The emerging markets also offer a greater amount of liquidity as well as stability compared to the frontier markets. However, it is also true that some financial analysts believe that there are certain emerging markets that have also matured to a point where they can move in tandem with the developed economies. Most of the nations in the world will currently fall in the category of the emerging markets, and they also have a much larger scope for development and economic prosperity in the near future.

Frontier Markets

Frontier markets are defined as a list of countries whose economies are comparatively less advanced, and they belong to the developing world. They are less established when compared to an emerging market. Many frontier economies do not even have a developed stock exchange market. Although these markets are comparatively smaller with less accessibility and riskier economic outlook when compared with the emerging markets, they still present a viable scope of investments for the companies who are looking to conduct business here. It is also true that the investors who are looking to put their money in the frontier markets also face a number of risks like poor liquidity, political instability, substandard financial reporting, inadequate regulation and large currency fluctuations.

Difference between Emerging and Frontier Markets

If an investor is looking to put their money in the emerging and frontier markets, they can have the prospect of both higher returns as well as higher risk. But it is also true that the emerging market economies are much more stable and developed compared to the frontier markets. There are some major points of difference between emerging and frontier markets, and we must discuss them below to get a deeper insight into this topic:

Emerging Markets

Frontier Markets

Definition

Emerging markets are defined as a list of countries that are in the process of becoming developed economies.

Frontier markets are defined as a list of countries that are the less advanced economies in the developing world.

Returns

Emerging markets can help to provide higher returns on the capital with a lesser amount of risk and greater levels of liquidity than frontier markets.

Frontier markets can provide lower returns on the capital with a higher amount of risk and lower levels of liquidity than emerging markets.

Conclusion

Both emerging and frontier markets have several differentiating factors. It is important for the companies to get a better understanding of these nations and plan their investment strategies accordingly.

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