Categorized | ETF, Investing

Investing In Frontier Markets For Growth


Investing In Frontier Markets | Which Markets Provide Exceptional Growth Opportunities

Investing In Frontier MarketsInvesting in frontier markets offers an opportunity for investors to cash in on the fastest growing economies in the world.  While the past decade has been a rough ride with a major economic recession and stock market crash during 2008 and 2009, taking a longer-term view, the global economy nearly doubled from $37 trillion in 2003 to $73 trillion in 2013.  Quickly developing frontier and emerging markets provided most of the growth during this ten-year period, as developed economies stagnated and provided low single digits growth, at best.  This trend is expected to continue for at least the next ten years, which means investors that want to capture the fastest growth in the world economy need to figure out how to invest in frontier and emerging markets.

Sub-Saharan Africa
While the emerging market BRIC countries (Brazil, Russia, India and China) have been the focus of many investors looking to invest in high growth economies, more recently frontier economies that ING Investment Management have coined PIVOTS countries (Peru, Indonesia, Vietnam, Oman, Turkey, and Sub-Saharan Africa) have become the primary focus of investors seeking the highest rates of economic growth in the world.  ING Investment Management predicts that frontier market PIVOTS countries will lead world growth in coming years and provide exceptional potential for investment returns.

There are several ways to invest in frontier market PIVOTS countries or frontier markets more broadly, which are outlined below.  Investing in individual stocks of companies in frontier markets is not advised, since the countries’ equity markets are not necessarily fully developed or well regulated, and direct investments in frontier market equities can be risky, costly, and difficult.  The best way to invest in frontier markets is via exchange traded funds (ETFs) or mutual funds.  These funds focus on specific frontier market economies or regions, and invest in companies that derive a significant portion of their revenue from frontier markets.  It is best to let investment professionals that manage ETFs and mutual funds for a living figure out which frontier market securities make sensible high growth investments.

Investing In Frontier PIVOTS Markets Via Funds

The following are some funds that can be used to invest in PIVOTS frontier market economies.

  • iShares MSCI All Peru Capped (NYSE:  EPU) – This Peru focused fund invests in Peruvian equities to provide investment results that correspond generally to the price and yield performance of the MSCI All Peru Capped Index. The index is designed to measure the performance of Peruvian equity securities, as well as securities of companies that are headquartered in Peru and have the majority of their operations based in Peru.
  • Market Vectors Indonesia Index ETF (NYSE:  IDX) – This ETF invests in securities of Indonesian companies included in the Market Vectors Indonesia Index.  Companies included in this index are either incorporated in, or generate at least 50% of their revenues, or maintain at least 50% of their assets in Indonesia.
  • Market Vectors Vietnam ETF (NYSE:  VNM) – The Market Vectors Vietnam ETF seeks to replicate the price and yield performance of the Market Vectors Vietnam Index. Companies included in this index are either incorporated in, or generate at least 50% of their revenues, or maintain at least 50% of their assets in Vietnam.
  • PowerShares MENA Frontier Countries Portfolio (NASDAQ:  PMNA) – There are currently no ETFs that are dedicated exclusively to investing in Oman.  However, the PowerShares MENA Frontier Countries Portfolio ETF (PMNA) invests in several Middle Eastern and North African countries, including Oman.  Oman based or revenue generating companies make up approximately 10% of the PMNA ETF.
  • iShares MSCI Turkey (NYSE:  TUR) – This ETF invests in companies that are included in the MSCI Turkey Investable Market Index.  The ETF holds stocks and depositary receipts of companies in the tracking index, and provides wide exposure to the Turkish economy via its equity holdings.
  • iShares MSCI South Africa Index (NYSE:  EZA) – The most direct way to expose an investment portfolio to Sub-Saharan Africa via an ETF is the iShares MSCI South Africa Index ETF (EZA).  The ETF tracks the MSCI South Africa Index, which includes stocks traded primarily on the Johannesburg Stock Exchange. Although the companies represented by these stocks trade on the. Johannesburg Stock Exchange, their business operations extend far outside of South Africa and into Sub-Saharan Africa, offering an avenue to invest in Sub-Saharan African frontier economies.
  • Market Vectors Africa Index ETF (NYSE:  AFK) – The Market Vectors Africa Index ETF (AFK) provides exposure to Sub-Saharan Africa frontier markets, as well as economies in northern Africa..

Investing Broadly In Frontier Markets Using Funds

The following are some funds that can be used to invest broadly in frontier markets in many continents and regions of the world, some of which are PIVOTS countries.  These funds are suitable for investors that want to expose their portfolios to a wide variety of frontier markets.

  • BLDRS Emerging Markets 50 ADR Index Fund (NASDAQ: ADRE)
  • SPDR S&P Emerging Latin America ETF (NYSE: GML) 
  • Wasatch Frontier Emerg Sm Countrs Inv (Mutual Fund:  WAFMX)
  • HSBC Frontier Markets A (Mutual Fund:  HSFAX)
  • iShares MSCI Frontier 100 Index (NYSE:  FM)

The Risks Associated With Investing In Frontier Markets

Frontier Markets
While investing in frontier markets exposes an investment portfolio to some of the fastest growing economies in the world, there are also risks associated with investing in frontier markets.  The risks range from potential internal political turmoil that could put corporate profits and investments in frontier markets at risk to changes in international interest rate policies that could lead to a flight of capital from frontier markets.  To diminish the risks associated with investing in frontier markets, it is a good idea to keep exposure to frontier markets within an investment portfolio to a reasonably low percentage of the overall portfolio.

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