The category of frontier country is used to encompass very heterogeneous economies. They are usually markets where few people dare to invest. For those who wish to learn more about investing in frontier markets, we analyze their most important stock market indices.
- MSCI Frontier Markets
- MSCI Frontier Markets IMI
- S&P Frontier BMI
- FTSE Frontier
- FTSE Frontier 50
The term frontier market was coined with the aim of describing countries that do not fit well with either the definition of developed or emerging country. However, there are two main types of countries that can be found here.
On the one hand, we have a number of developing nations that could one day achieve the status of emerging economy. This would be achieved if they managed to develop their economy and capital markets sufficiently. Some examples would be Nigeria, Morocco, Vietnam, Ecuador or Peru.
On the other hand, there are relatively prosperous, or even very prosperous economies with capital markets that are not easily accessible to foreign investors or with unorthodox monetary policies. Some examples are Argentina, Latvia, Bahrain, Oman or Panama.
Be that as it may, frontier markets are one of the places where it is most difficult to invest successfully. A quick look at the historical returns of these stock markets is enough to realize that most of them are very tricky. However, it is also possible to generate extraordinary returns if we are able to identify which countries or companies will be able to prosper in the future.
For those investors who wish to put part of their capital in frontier markets, but without having to pick countries or companies individually, there are global stock indices that are very diversified from a geographical perspective. So that you are able to find a passive investment fund that matches with your preferences, we analyze the most important ones.
MSCI Frontier Markets
The MSCI Frontier Markets is a stock market index calculated by MSCI. It contains about 100 companies from around 30 different countries. The number of stocks or companies fluctuates over time.
That depends on how many companies manage to meet the minimum capitalization and liquidity criteria, and which countries are considered frontier markets.
Within the MSCI Frontier Markets, the country with the largest weighting is Vietnam, an Asian economy that is beginning to industrialize. Other countries with considerable representation are Kazakhstan, Morocco, Iceland and Romania.
As you can see, the level of heterogeneity within frontier countries is high. If you want to find out more about this index, including which companies are the most important ones in it, you can visit the MSCI website.
MSCI Frontier Markets IMI
MSCI publishes another version of the index that imposes lower thresholds regarding the size and liquidity that a company must have to be eligible for the index. This is the MSCI Frontier Markets IMI.
Hence, we find the same countries in this index but the number of stocks in it is close to 300. Because weighting is carried out based on market capitalization adjusted for free float, the same companies dominate here. But it also makes it possible for us to invest in small cap stocks in somewhat obscure markets.
Some of the countries whose weighting increases in the MSCI Frontier Markets are Bangladesh and Bulgaria. More information can be found on the MSCI website.
S&P Frontier BMI
The company S&P Global publishes the stock index of frontier countries with the largest number of companies. This is the S&P Frontier BMI, in which we can find more than 700 companies from over 30 countries.
These are weighted according to their market capitalization adjusted for free float.
The country with the highest weighting is Argentina, followed by Vietnam, Morocco, Nigeria and Panama. Several European countries, including Slovenia and Croatia, also receive a significant allocation.
As for the economic sectors with the greatest representation, these are banks and consumer discretionary companies. If you want to find more information about the S&P Frontier BMI, here is the link to its official website.
The FTSE Frontier is a stock market index calculated by FTSE Russell that includes companies from about 30 countries. In total, some 350 corporations are part of the index.
In this sense, it is a basket of stocks with a considerable level of diversification. Vietnam is the country with the highest weighting. Some of the countries represented here include Sri Lanka and Tunisia, although with modest representation.
The composition of the FTSE Frontier is quite similar to that of the MSCI Frontier Markets IMI. If you want to find out more about it, you can visit the FTSE Russell website.
FTSE Frontier 50
Finally, FTSE Russell calculates a version of its frontier country index that only includes the 50 largest companies in this universe of stocks. This is a good idea, as it ensures that there is a sufficiently high level of liquidity.
One of the consequences of having fewer stocks in the index is that many countries are no longer represented. Within the FTSE Frontier 50, the countries with the largest weights are Vietnam, Morocco, Bahrain, Oman and Peru.
This index is ideal for companies that manage passive investment funds. You will find more details about it on the FTSE Russell website.
I hope you found this article about frontier markets global indices useful. If you want to learn about the most important stock indices for emerging countries, check out the following link:
Top 7 Global Stock Indices for Emerging Countries
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