Take Your Portfolio To The Next Frontier

KEY POINTS

• Frontier markets offer great investment potential with their strong economic growth, low volatility, low correlation with major indices as well as a more "pure play" approach to gaining emerging market exposure
• Risks include political and regulatory risks and illiquidity risks
• Investors may gain exposure to frontier markets throught the Templeton Frontier Markets Fund

FRONTIER MARKETS: “THE NEW EMERGING EMERGING MARKETS”

Frontier markets are considered a subset of emerging markets. Compared to the majority of economies classified as “emerging markets” however, frontier markets consist of less developed, less liquid economies with companies of smaller market capitalisation. Examples of countries that are considered frontier markets include Argentina, Croatia, Romania, Kenya, Nigeria, Qatar, United Arab Emirates, Sri Lanka and Vietnam.

Frontier markets are a relatively new class of investment; of the three major frontier market index providers, the earliest was only launched in May 2009 by MSCI Barra – the MSCI Frontier Markets Index. The FTSE Frontier 50 Index and the S&P Frontier BMI were launched in September 2010 and April 2011 correspondingly.

For the purpose of this article, we will compare the investment merits of frontier markets by comparing the MSCI Frontier Markets Index against its US, developed markets, and emerging markets counterparts. The indices used are the MSCI US Index, MSCI World ex-US Index and the MSCI Emerging Markets Index respectively.

Full article here: FSM