Frontier Markets ETF

 

Over 500 stocks are traded across 22 frontier markets, and they have a total market capitalization of $165 billion, according to an April report by Acadian Asset Management. That is not much. As a comparison, the stock market capitalization of just one Russian oil company, Lukoil, is about $70 billion, and more than 800 companies are listed on the Shanghai Stock Exchange, one of the two exchanges in China.

Despite its size, a frontier market can reward investors handsomely. In just the past three years, the Ukrainian stock market has returned 700 percent. That is an incredible return. It has risen about 160 percent in the past year, while the stock market in Slovenia has gained 110 percent. Botswana’s market has returned about 90 percent, and Bangladesh advanced 60 percent. Unfortunately not all are winners. The Jamaican exchange is down 4 percent this year, though it gained 150 percent in 2003 and 2004 combined.

 

Here are some examples of what are known as Frontier stocks. Many of these stick will be in soon to be released in a Frontier markets ETF:

  • Bahrain:
    Arab Insurance, London Stock Exchange
    Gulf Finance House, London Stock Exchange

 

  • Ukraine:
    Kremney Public Company, Frankfurter Wertpapierboerse

 

There are multiple Frontier Market indexes. One is the S&P/IFC Global Frontier Markets index.

This index covers the stock markets of 22 countries, and gained 49 percent in the year ended Aug. 31. That compares with 16 percent for the Standard & Poor's 500-stock index during the same period. The S&P Frontier Markets represents those markets that tend to be relatively small and illiquid even by emerging market standards. It is just a matter of time before an ETF is available for the S&P Frontier Index. As a member of the S&P Emerging Market indices, it is constructed from equities included in the Emerging Markets Database (EMDB).

 

MSCI Frontier Markets Indices

It reflects expanded investment opportunities going beyond traditional developed and emerging markets. This index covers 19 countries, and the MSCI Frontier Markets Indices are designed to track the performance of a range of equity markets that are now more accessible to global investors. They do aim to achieve a broad representation of the investment opportunity set while taking into consideration investability requirements within each market. No Frontier Market Exchange Traded fund (ETF) is available for this index yet either.

 

 

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