What Are the Frontier Market Indices

The world of global investing is vast and ever-changing. Among the most intriguing corners of this universe lies the frontier market indices a set of benchmarks that capture the pulse of smaller, developing economies on the edge of global transformation. These indices represent the performance of nations that are not yet classified as “emerging markets,” but are well on their way toward economic modernization and growth.

Understanding frontier market indices is crucial for investors seeking new opportunities beyond the traditional developed and emerging economies. These indices serve as roadmaps for global diversification and highlight where tomorrow’s growth may come from.

What Are Frontier Market Indices?

At their core, frontier market indices are collections of stocks from the world’s smaller and less accessible economies. Think of them as the next step after emerging markets countries with growing industries, rising consumer demand, and increasing investor interest but limited market infrastructure.

Some of the most recognized frontier market indices include:

• MSCI Frontier Markets Index

• FTSE Frontier Markets Index

• S&P Frontier BMI Index

Each of these indices measures the performance of a basket of companies listed in “frontier economies.” These are typically nations that do not yet meet the size, liquidity, and regulatory requirements to be classified as “emerging markets.”

For example, the MSCI Frontier Markets Index includes countries such as Vietnam, Nigeria, Morocco, Kazakhstan, and Romania, among others. These countries might have smaller stock exchanges, but their economies are rapidly modernizing.

Why Frontier Market Indices Matter

Frontier market matter because they shine a light on economies that are too often overlooked by mainstream investors. These nations are frequently in the early stages of industrialization and globalization much like China or India were two decades ago.

By tracking frontier market indices, investors can:

• Diversify their portfolios with non-correlated assets.

• Capture high growth potential in economies with untapped opportunities.

• Understand geopolitical and economic shifts in developing regions.

• Benchmark performance of frontier-focused funds and ETFs.

According to Marko Dimitrijevic, the author of Frontier Investor, frontier markets represent “the next great investment frontier,” where early investors can benefit from growth before these economies transition to emerging status.

How Frontier Market Indices Are Calculated

Just like the S&P 500 or the MSCI World Index, frontier indices are calculated based on the performance of a selected group of companies. However, there are specific factors that make their construction unique.

1. Country Classification

Each index provider (like MSCI, FTSE, or S&P) uses its own methodology to determine whether a country qualifies as a frontier market.
Key factors include:

• Market accessibility for foreign investors

• Economic stability

• Size and liquidity of local stock markets

• Regulatory transparency

For instance, MSCI classifies a country as “frontier” when it meets minimum size and liquidity standards but lacks the full investor access or economic depth of an emerging market.

2. Market Capitalization

Most frontier market indices are weighted by market capitalization. This means that larger companies (by total market value) have more influence on the index’s overall performance.
Example: In the MSCI Frontier Markets Index, a major company in Kuwait or Vietnam will have a greater weight than a smaller firm in Botswana.

3. Free-Float Adjustment

Only the shares available for trading (not held by governments or insiders) are included in calculations. This ensures that the frontier market indices reflect actual market conditions and investable opportunities.

4. Rebalancing and Review

Frontier markets indices are rebalanced periodically usually quarterly or semi-annually to ensure they reflect the most accurate and up-to-date representation of each market.

Top Frontier Market Indices in 2025

In 2025, several frontier market indices serve as benchmarks for institutional and retail investors. Here are the key ones to know:

Each of these indices provides a slightly different picture of the global frontier market landscape, based on the countries and sectors included.

The Role of MSCI in Defining Frontier Markets

The MSCI Frontier Markets Index is one of the most widely followed benchmarks for tracking frontier economies. It provides investors with a structured and transparent way to analyze performance across smaller markets.

As of 2025, MSCI includes countries such as:

• Vietnam

• Romania

• Kazakhstan

• Kenya

• Morocco

• Nigeria

• Bangladesh

• Mauritius

MSCI’s classifications can significantly influence investor decisions. When a country is upgraded from the MSCI Frontier Markets Index to the MSCI Emerging Markets Index, it often experiences a surge in foreign investment inflows.

Benefits of Tracking Frontier Market Indices

Monitoring frontier markets indices allows investors to identify trends, assess risk, and make informed investment decisions. Key benefits include:

1. Early Access to Growth

Frontier economies often grow faster than developed nations. By following their indices, investors can identify early-stage opportunities.

2. Diversification

Frontier markets tend to have low correlation with developed market indices like the S&P 500 or MSCI World Index, offering risk mitigation benefits.

3. Benchmarking Tools

Investors can use frontier market indices to compare fund performance or evaluate ETFs designed around these economies.

4. Market Transparency

Indices help improve transparency by standardizing the way frontier markets are measured.

Challenges in Frontier Market Indices

Despite their potential, frontier market indices also come with challenges:

• Limited Liquidity: Many frontier market stocks are thinly traded.

• Political Instability: Government changes or unrest can impact markets.

• Currency Volatility: Exchange rate fluctuations can affect returns.

• Data Gaps: Less consistent financial reporting in some economies.

Understanding these challenges is crucial for anyone interested in frontier investing.

How Investors Use Frontier Market Indices

Frontier market indices serve as the foundation for various investment strategies, including:

• Exchange-Traded Funds (ETFs) that track indices like MSCI or FTSE Frontier Markets.

• Mutual Funds dedicated to frontier or emerging economies.

• Active Portfolio Management focused on outperforming index benchmarks.

• Quantitative Research analyzing risk-adjusted returns across developing markets.

The Future of Frontier Market Indices

The next decade will be pivotal for frontier markets. With technological advancement, improved governance, and increased investor participation, frontier market indices are expected to become even more influential.

Countries like Vietnam, Bangladesh, and Kenya are leading the charge, transforming from underdeveloped economies into dynamic global participants.

As Marko Dimitrijevic notes, “The future belongs to those who explore beyond the familiar.” His book Frontier Investor provides a deep dive into understanding how these economies evolve and why frontier indices serve as early indicators of global economic shifts.

Frontier market indices are more than just numbers they represent real economies, human progress, and the global search for growth. Understanding how these indices are structured, why they matter, and how to use them effectively is key to mastering frontier investing.

For anyone serious about uncovering new global opportunities, reading Frontier Investor by Marko Dimitrijevic is a must. It’s a blueprint for understanding and succeeding in the exciting world of frontier market indices and global investing.