What is a Frontier Market?
Frontier market describes up-and-coming economies that tend to be smaller and less developed than emerging markets like China and India.
How Does a Frontier Market Work?
Frontier markets have a poor population willing to work to thrust itself into a middle class and, with luck, they also have access to a deep cache of natural resources and an appetite for export dollars.
Examples of such economies include Albania, Bangladesh, Botswana, Cyprus, Estonia, Lithuania, Romania and Sri Lanka.
Frontier markets are considered a type of emerging market.
Why Does a Frontier Market Matter?
Investing in these economies is becoming easier, as brokerages are offering more ETFs with exposure to frontier markets. Returns can be very significant on these types of investments, but not without substantial risk. They have less liquidity than developed emerging markets and investors should expect to see returns over the long term, not immediately.
A list of all of the frontier markets classified by the FTSE company can be found here.