Emerging Markets
An emerging market economy is a nation’s economy that is investing in more productive capacity and are progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets, and the existence of some form of market exchange and regulatory body.
Some emerging markets have some characteristics of a developed market, but call short of meeting the standards to be a developed market. EM are however important because they drive growth in the global economy.
Examples of emerging markets include;
Brazil, Russia, India, China, South Korea, Mexico, Indonesia, Turkey, Saudi Arabia and Iran.
Frontier Markets
A frontier market is a type of developing country which is more developed than the least developing countries, but too small to be generally considered an Emerging Market. They are categorically the riskiest markets in which to invest in, while some countries may not have a stock market on which to trade.
Examples of frontier markets include;
Cyprus, Ukraine, Croatia, Estonia, Qatar, Bahrain, Kuwait, Nigeria, Botswana, Kenya, Ghana, Argentina.
Differences between both Markets
Stock Exchange
• Sectors:
The stock exchanges in Frontier Markets are dominated majorly by the financial and telecommunication companies, whose shares account for a large chunk of the Market Cap of their respective stock exchanges.
The stock exchanges of Emerging Markets have a broader range of industries/sectors with a lot of companies which includes; Agriculture, Manufacturing, Services, Transportation, IT, Wholesale and Retail trade, Education, Culture Sports and Entertainment.
• Market Capitalization:
The market cap of Emerging Markets accounts for about 10% of the total Market cap of Global Stock Exchanges while that of Frontier Markets accounts for about it less than 1%.
• Liquidity
Most Frontier markets are not easily accessible to invest in. They tend to have a small number of liquid securities and restrictions on foreign ownership. Emerging markets are easier to invest in.
• Investment Products
Although some Frontier Markets are improving in terms of the products being offered on their stock exchanges, the majority of FMs have a stock market largely dominated by equity securities.
In Emerging Markets, there is much depth in the type of products traded which includes; Exchange traded funds, commodities, futures, forwards and options.
Ease of Doing Business
The ease of doing business is very difficult in Frontier Markets compared to Emerging Markets, and some of the economies in FM rank very low in the World Bank Ease of Doing Business Index.
Some of the criteria used include;
- Starting a business
- Dealing with construction permits
- Getting electricity
- Getting credit
- Paying taxes
- Enforcing contracts