Emerging Markets v/s Frontier Nations:
An emerging market is a country that has
few characteristics of a developed market,
but does not meet the standards of a developed market.The term “frontier market” is used for developing countries with slower economies than “emerging”.
A frontier market is a type of
developing country which is more developed than the least developing countries, but too small to be
considered an emerging market.
Challenges posed to Emerging markets by
Emerging nations are being treated as a
blow to the U.S. monetary policy which continues to be shifting. Moody’s
estimates that emerging market economies could face a cumulative 2013-2016 GDP
growth loss of between 2.8 percent – 3.1 percent depending on the speed of the
growth of the economy.
Among nations most that are mostly exposed
to a reduction or reversal of financial flows, emerging markets rank high,
given that they were the recipients of large amounts of capital inflows.
This reversal in growth prospects and
the ongoing reduction of excessive liquidity led to a fall in the differential
return on assets in advanced and emerging economies. This led to capital
outflows, which in turn triggered falls in equity and bond indices as well as
currency depreciations in the very same emerging markets that had benefited
from the original inflows,”
The major emerging markets are seeing
their phenomenal growth over the last decade or more slow considerably. And as
some of the emerging markets ascend to developed status, the better returns in
the coming years will likely be from frontier markets.
Although EEM does have a lot of frontier
market exposure it still has more than 50% in the BRICS countries (Brazil,
Russia, India, China and South Africa). This will be fine for many investors,
but others will want a greater percentage allocated to frontier markets, and in
many cases specific frontier market countries.
As the economic situation in the various
countries changes, you may not want to be so focused on the larger, more
developed emerging markets. Regional and country-specific frontier market ETFs
provide you the opportunity to be invested specifically where you believe the
best opportunities are.
The emerging markets contributed
significantly in recovery of global economy from the recession that followed
the collapse of Lehman Brothers Holdings in 2008.