How to Invest in Frontier Markets

Emerging market ETFs have fared poorly this year - but frontier markets have returned 20%. hy has there been such a discrepancy in performance?

Patricia Oey, ETF analyst 21 November, 2013 | 8:23AM

The performance of emerging-markets stocks has been very disappointing in 2013, due, in part, to taper talk in the United States and slowing growth among many of the high flyers of the last decade, including China and Brazil. Frontier markets, on the other hand, have had a standout year, with the MSCI Frontier Markets Index returning 21.1% in the first 10 months of the year, trouncing the MSCI Emerging Markets Index's return of 0.3%.

Aren't frontier markets just less developed emerging markets? Why has there been such a discrepancy in performance?

Getting in Early

The investment case for frontier markets sounds enticing. These countries, such as Vietnam, Nigeria, and Pakistan, are at an earlier stage of development relative to emerging-markets countries, and some are entering a period of mid- to high-single-digit growth, thanks to favourable demographics, infrastructure spending, and an improving business environment. Innovations in financial services in Africa, through mobile and agency banking, will allow for rapid expansion of low-cost banking services and credit, which will likely support more broad-based and inclusive growth.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
PepsiCo Inc144.16 USD0.09

About Author

Patricia Oey, ETF analyst  

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