The Major Characteristics of Frontier Markets - dummies

The Major Characteristics of Frontier Markets

By Gavin Graham, Al Emid

Part of Frontier Markets For Dummies Cheat Sheet

For an investor, frontier markets are where the major emerging markets were 12 to 15 years ago in terms of GDP growth, structure of their economies, and valuations. The largest and poorest frontier economies have very young populations, a low level of urbanization, and are generally embracing economic reforms. The major advantage of frontier markets that makes it likely that they will perform as well as emerging markets have over the last 10 to 15 years is that they have the same characteristics now as the major emerging markets had earlier but still sell at reasonable valuations.

These characteristics include but are not limited to the following:

  • Young populations that are growing rapidly

  • Birth rates that, while still healthy, have declined somewhat

  • Low levels of urbanization leading to migration from the countryside to the cities

  • Growing middle classes as incomes rise

  • Rapid economic growth producing rising living standards

  • Low levels of internal and foreign debt

  • Governments pursuing policies of liberalization and reform

  • The removal of trade barriers through the free trade agreements and reductions in tariff and customs duties

  • Low valuations