In the diverse world of financial investments, we often hear about markets classifying them as "Developed", "Emerging" and "Frontier". But what exactly does it mean?
In a strictly "market" sense, classifying nations according to the above means dividing them according to the risk (of investment). Logic would have it that if someone invests in a developed market, he invests in a country with the infrastructure top, connessioni e business possibility of the world, and therefore in a less risky place for investments, even if perhaps not as interest-bearing as in other markets.
Grossly, therefore, those who invest in so-called "Emerging" or "Frontier" markets are exposed to geopolitical/financial risks ed economic greater than those who invest in markets with a consolidated economic/financial tradition and solid democratic foundations (or pseudo-democratic ones, but still able to provide geopolitical security to those who invest).
FTSE, Standard & Poor's, Msci, Dow Jones e Russell they juggle a list of 26-27 states considered as “fully developed” markets. They are: Australia, Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, Holland, New Zealand, Norway, Portugal, Singapore, South Korea , Spain, Sweden, Switzerland, United Kingdom, United States.
In the light of what is happening in recent days, it should be pointed out that the only state in which there is no full agreement on its location is Cyprus. As we know, the country has leapt to the honors (or dishonors) of the news recently for being close to a failure of the banking system (and having received some "oxygen" from African banks!!!). Personally I would NEVER consider Cyprus as a developed market, but be that as it may…
The so-called “Emerging” markets, i.e. those markets which have not yet achieved Developed status, but they are rapidly approaching it, just think of the very high and unthinkable growth rates in Europe (the cases of Mexico and Turkey are exemplary), they are the following, again according to world data providers: Argentina, Brazil, Bulgaria, Chile, China, the Republic Czech, Estonia, Hungary, India, Indonesia, Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Romania, Russia, South Africa, Thailand, Taiwan, Turkey, Ukraine, Venezuela.
Within Emerging Markets one sometimes finds the distinction between “Primary” and “Secondary”; this division, as it is easy to understand, is based on proximity to those criteria of prosperity. This second classification sees the following nations as "Primary Emerging". The others, of course, are the Secondaries. Brazil, Czech Republic, Hungary, Malaysia, Mexico, Poland, South Africa, Taiwan, Thailand, Turkey.
Nations such as Morocco, United Arab Emirates, Colombia, Argentina are considered "Borderline", that is to say that someone already considers them as Emerging, while others still classify them as Borderline.
If on Morocco and, more specifically, on Colombia, one can easily agree on the classification as Frontier Markets for the United Arab Emirates (which in addition to the well-known Abu Dhabi and Dubai also include five other emirates, namely Ajman , Fujairah, Sharjah, Ras al-Khaimah and Umm al-Quwain) or for Argentina it is more difficult for me. The economic welfare (if not the political one) is far superior to that of the other two states.
Some organizations that deal with the classification of nations by investment risk, also include Bulgaria, Estonia, Lithuania, Romania and Ukraine in this "Borderline" list.
Last, but not least (indeed...), are those so-called "Frontier" markets, i.e. countries where it is possible to invest, but with generally lower market capitalizations and less liquidity than in Emerging Markets. Those who invest in it usually look for high yields with long time horizon e low correlation with other markets.
As it is easy to understand, any nation that is not part of the two previous lists can be considered "frontier", but even in this case distinctions must be made: without taking anything away from anyone, Gabon or the Central African Republic cannot be, economically and financially speaking , compared to Mongolia, Qatar or Vietnam.
The following is the list of countries that the various classification entities give as Frontier Markets with the broadest general consensus (here is a list from Credit Suisse): Bahrain, Bangladesh, Ivory Coast, Croatia, Jordan, Kazakhstan, Kenya, Lebanon, Macedonia, Malta, Mauritius, Mongolia, Nigeria, Oman, Qatar, Serbia, Slovakia, Slovenia, Sri Lanka, Trinidad and Tobago, Tunisia, Vietnam.
The implications of investing in these countries, be they Developed, Primary or Secondary Emerging, or Frontier, are many and varied. You can invest there either through Mutual funds or with ETFand in a rather varied way. Given the complexity of the topic, they will be the subject of future articles.
