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Emerging stock market and Frontier stock market

Before knowing that what is the difference between emerging markets and frontier markets. Firstly, an investor should know or clear about that what does the term market mean, or how we can define market. Market is a place where we can buy or sell goods or commodity and earn profit. However, Stock market may be defined as where all the investors and investment seekers invest their assets and funds in a better way and maximize their wealth. Stock market and stock exchanges are very essential for all the investors.
In this article it might be worthwhile to differentiate between emerging stock markets and frontier markets. Emerging stock markets are the countries like Malaysia, brazil and china, however there is no proper and well defined definition for frontier markets we can define these markets with countries that are not much established or in the initial stage of their development with respect to its growth .

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Frontier Markets

Frontier markets used to describe those countries that are less developed or we can say that countries in a much earlier stage of their economic development. For example : Countries like democratic republic of Congo (DRC),Palestine, Bhutan, , Zimbabwe and Iraq .These countries are challenging for the investors to invest in because of their lower market capitalization. Frontier markets are less developed than emerging markets because these markets are generally very illiquid. Frontier stock markets are attractive for those investors, seeking long term results on their investments than other developed markets.

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Table 1 :

                   Emerging Markets                                                                                      Frontier Markets

1 Emerging markets are highly liquid because in these markets currencies are more easily convertible into cash. However, Frontier markets are less liquid than emerging markets.
2 Emerging markets are more efficient because, In emerging markets the equity universe is covered by a wide range of analysts. In frontier markets very few stocks are covered by more than two or three analysts.
3 Emerging markets generally have high level of risk and high level of volatility. While frontier markets have extreme level of risk and lower level volatility.
4 Emerging economies have more established markets and large number of foreign investors who play a vital role in boosting up their economic growth. Whereas, Frontier markets are less developed and don’t have the same level of maturity and foreign investments.
5 Emerging markets valuations are effected by global issues. However, frontier markets valuations are effected by local issues.
6 These markets have more Political stability and adequate regulations, that’s why investors are more likely to invest in it. Frontier markets are politically instable and have inadequate regulations.

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Emerging Markets
Emerging markets are those who are significantly well established or developed in term of their government structure and because of their highest market capitalization. Emerging markets are highly liquid which makes it easier for the investors to invest in. Examples would include Chile, Nigeria, Pakistan, Romania and Egypt. Emerging markets have higher GDP than frontier markets. Both emerging and frontier markets offer higher market returns but come with a significantly higher level of risk.Table 1 also fully explains the difference between the frontier markets and emerging markets.

 

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About Emaad Qureshi