Tags: Frontier | markets | developed | volatile

Frontier Markets Offer Superior Returns With Less Volatility Than Emerging Markets

By    |   Tuesday, 03 June 2014 09:35 AM

Frontier stock markets, one step below emerging markets, have outperformed both emerging and developed markets during the last 17 months.

And surprisingly enough, frontier markets also are less volatile than their larger brethren are, according to a study from money management firm manager LR Global obtained by The Wall Street Journal.

The MSCI Frontier Markets Index has surged more than 50 percent since the beginning of 2013, compared with about zero for the MSCI Emerging Markets Index and 32 percent for the MSCI World Index, The Journal reports.

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Among the top-performing frontier markets during that period have been Bulgaria, up 91 percent; Pakistan, up 88 percent; and Nigeria, up 47 percent.

As for the LR Global study, which encompassed the 10 years ended Dec. 31, it showed that frontier markets are much less volatile than emerging markets are and a bit less volatile than developed markets are, according to The Journal.

The low volatility in frontier markets stems partly from their limited exposure to the global financial system, Brent Clayton, a portfolio manager at LR Global, tells the paper.

In times of turmoil, global investors ditch emerging markets, but frontier markets are less dependent on foreign capital.

“These are markets that are primarily driven by local investors and avoid the whims of shorter-term-driven foreign capital flows,” Clayton explains.

The MSCI Frontier Markets Index has gained 17 percent so far this year.

So what's the appeal of frontier markets?

"Investors want [exposure to] countries that have the significant potential to change over the next 10 years, have a rising middle class, developing financial markets and products," Josef Odili, head of Africa research at money manager RisCura, tells Pensions & Investments.

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Frontier stock markets, one step below emerging markets, have outperformed both emerging and developed markets during the last 17 months.
Frontier, markets, developed, volatile
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2014-35-03
Tuesday, 03 June 2014 09:35 AM
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