DEFINITION of 'Frontier Markets'

Less advanced capital markets from the developing world. Frontier markets are countries with investable stock markets that are less established than those in the emerging markets.

They are also known as "pre-emerging markets".

BREAKING DOWN 'Frontier Markets'

The frontier, or pre-emerging, equity markets are pursued by investors seeking potentially high returns who are able to accept the higher risks these type of markets would be exposed to. Some of the risks investors face in these frontier markets are political instability, poor liquidity, inadequate regulation, substandard financial reporting and large currency flucuations. In addition, many markets are overly dependent on volatile commodities.

Frontier market investments can have a low correlation to developed markets and thus can provide addtional diversification to an equity portfolio.

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