Frontier Markets – An Alternative to Emerging Markets
While emerging markets are a common term for most investors, frontier markets often move in the shadow of their bigger brother. But how do these categories differ? Citywire looks at an often-overlooked sector.
Frontier markets are a distinct category of countries that fall after developed and emerging markets. To define them more precisely, MSCI uses a helpful definition that considers not only economic data but also the size and liquidity of the market itself. Countries can move between categories based on their economic development and market conditions. For example, Pakistan lost its emerging market status and became a frontier market in 2021, while Greece slipped from developed to emerging market status in 2013. However, countries can also move up in categories. Frontier markets can become emerging markets, while emerging markets can eventually become industrialized countries.
Frontier Markets With Good Performance
Over the past decade, Frontier Markets have performed slightly better than the Emerging Markets. The MSCI Frontier Markets index, which includes countries like Vietnam, Romania, Morocco, Kazakhstan and Iceland, has generated an annualized return of 2.61% in US dollars up to the end of September. In comparison, the MSCI Emerging Markets index has returned 2.07% over the same period. Furthermore, the Frontier Index currently offers a higher dividend yield of 4.3% than the Emerging Markets Index, which is just below 3.1%.
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