Tag Archive | "Investing In Frontier Markets"

Investing In Frontier Markets For Growth


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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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Investing In Emerging and Frontier Markets


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Why Investing In Emerging Markets Using Funds Makes Sense

Investing In Emerging And Frontier MarketsFor investors looking to put money into more speculative, but potentially more rewarding investments, investing in emerging and frontier markets is worthy of consideration.  The world of investment is essentially divided into three broad categories:  developed markets, such as the United States and the developed world, emerging markets, such as China and the developing world, and frontier markets, such as Botswana and countries that are making the transition to the developing world.

Emerging and frontier markets are located on the continents of Asia, Africa, and South America.  Out of these three continents, Africa is often overlooked by investors looking for investments in frontier markets.  Africa has some of the fastest growing economies in the world, as countries emerge from their undeveloped state and make use of their plentiful natural resources to develop their economies.  One thing that emerging and frontier markets tend to have in common is a citizenry that is struggling to improve their standard of living, which is a natural driver of economic growth.  These countries also tend to have natural resources that are in the process of being developed, which provides a boost to gross national product and eventually per capita income.

Frontier MarketsWhile investing in developed markets is the safest bet amongst the three broad investment categories, it also provides a lower economic growth rate and potentially less robust returns than high growth emerging and frontier markets.  The difference between emerging and frontier markets is sometimes a bit unclear, as frontier markets are moving in the direction of becoming emerging markets.  Emerging markets are defined as countries that are rapidly industrializing and have a relatively short but established tradition of development.  Frontier markets are defined as countries that are in the process of transforming from non-industrialized economies to rapidly industrializing economies.  While emerging markets are a bit safer to invest in, since they are already rapidly industrializing and often experience growth levels well above those experienced in developed markets, frontier markets have the potential for explosive growth, which makes the profit potential even higher than emerging markets.

Researching and investing in companies located in emerging and frontier markets is very difficult.  Obtaining information can be difficult, due to varying reporting standards within their respective countries.  Also, the stocks of companies located in emerging and frontier markets are often traded locally, and are not easily accessible to investors located in developed countries.  The easiest way to invest in emerging and frontier markets is to buy mutual funds, exchange traded funds (ETFs), or exchange traded notes (ETNs) that invest in securities of companies either located in emerging and frontier markets or that obtain a significant portion of their revenue and income from operations in emerging and frontier markets.  Although there are fees associated with investing in emerging and frontier markets via funds, these fees are well worth the cost, since the research of suitable companies and purchase of securities is handled by the investment professionals that manage the funds.

Investing In Emerging Markets Using Funds

Emerging Markets
There are a number of funds that can be used to invest in emerging and frontier markets.  The following are some examples of funds that can be used to invest in emerging and frontier markets.  Due to the speculative nature of investments in emerging and frontier markets, only a portion of an investment portfolio should be allocated to emerging and frontier markets investments, such as the following investment fund ideas.

  • BLDRS Emerging Markets 50 ADR Index Fund (NASDAQ: ADRE) – ADRE is an emerging markets fund that invests in emerging markets companies that are included in the Bank of New York Emerging Markets 50 ADR Index.
  • SPDR S&P Emerging Latin America ETF (NYSE: GML) – GML is an emerging markets fund that tracks the performance of the S&P Latin America BMI Index, which includes companies based in or doing business Latin American emerging markets.
  • SPDR S&P Emerging Markets Small Cap (NYSE: EWX) – EWX is an emerging markets fund that invests in the small capitalization companies that do business in emerging market countries. The fund is designed to generally track the performance of the S&P Emerging Markets Under $2 Billion Index.
  • Wasatch Frontier Emerg Sm Countrs Inv (WAFMX) – WAFMX is a mutual fund that invests in equities of companies that do business in small emerging and frontier markets.
  • HSBC Frontier Markets A (HSFAX) – HSFAX is a mutual fund that invests in equities of companies doing business in frontier markets.  It generally invests in frontier market companies with market capitalizations of $100 million or more, but can invest in companies of any size.
  • iShares MSCI Frontier 100 Index (NYSE:  FM) –  FM is a frontier markets fund that tracks the performance of the MSCI Frontier Markets 100 Index.
  • Market Vectors Africa Index ETF (NYSE:  AFK) – Market Vectors Africa Index ETF focuses its investment in economies of countries located in Africa, which boasts some of the fastest growing economies in the world.  The fund is considered to be mainly a frontier markets fund, since many of the African countries that it invests in have frontier markets.

It is important to keep in mind that emerging and frontier markets are notoriously volatile, and therefore the funds that track them are also volatile.  However, in the long term, emerging and frontier markets have great growth potential, which could translate to above-average growth rates for companies doing business in these fast growing markets and to above-average returns for funds invested in these companies.

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