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http://www.livemint.com/Money/fyQTVFGQNFKUW9Trxfa68M/Dejargoned-frontier-markets.html
De-jargoned: frontier markets
The debate on emerging versus developed markets in terms of capital market performance has been going on for long. But there is another group, referred to as frontier markets, which are distinct from emerging and developed markets. In recent times, returns from frontier markets have attracted investment experts for prospects in growth assets.
What are frontier markets?
The term was first used in the early 1990s. Technically, it is a set of countries that belong to the emerging market group but are in the early stages of economic growth. In other aspects, too, like political structure or capital markets, these countries are behind typical developing or emerging markets.
The stock markets in these countries exist but are not very developed. This means that the market capitalization for the stock markets is not very high and liquidity is also limited. Moreover, market regulations could still be nascent. Hence, the risk of investing in frontier markets is high, but the potential long-term returns could also be very lucrative. This will, of course, depend on economic growth in these countries.
Why are they in the news?
In a recent blog, investment expert Mark Mobius of Franklin Templeton Investments, wrote: “Frontier markets represent what emerging market countries such as Brazil, Russia, India and China were 20-25 years ago.” The blog went on to say that these markets can make for attractive investment destinations because these are typically more exposed to their domestic economic dynamics than to global conditions. As the global economy is growing at a slow pace, high-growth frontier markets are drawing interest.
Frontier markets are not limited to any one part of the globe but are spread across regions. To name a few, countries in Eastern Europe such as Bulgaria, Croatia and Romania are part of this basket, along with the United Arab Emirates, Sri Lanka, Kenya and Argentina.
Tracking these markets
There are equity market indices that have been created to represent these frontier markets. MSCI Frontier Market Index and FTSE Frontier 50 Index are two such indices.
Typically, frontier market indices trade at a price-earnings (P-E) multiple and a price-to-book value that is much more discounted than a comprehensive world index. For example, the MSCI Frontier Markets Index currently trades at a P-E of around 13.13 and the MSCI World Index trades at a P-E of 17.86 times.
As of now, there is no fund available in the domestic market that specifically gives you exposure to frontier markets.
One must also note that investing in these markets is a matter of high-risk high-return, and should be looked into only by seasoned investors and asset managers.
De-jargoned: frontier markets
The debate on emerging versus developed markets in terms of capital market performance has been going on for long. But there is another group, referred to as frontier markets, which are distinct from emerging and developed markets. In recent times, returns from frontier markets have attracted investment experts for prospects in growth assets.
What are frontier markets?
The term was first used in the early 1990s. Technically, it is a set of countries that belong to the emerging market group but are in the early stages of economic growth. In other aspects, too, like political structure or capital markets, these countries are behind typical developing or emerging markets.
The stock markets in these countries exist but are not very developed. This means that the market capitalization for the stock markets is not very high and liquidity is also limited. Moreover, market regulations could still be nascent. Hence, the risk of investing in frontier markets is high, but the potential long-term returns could also be very lucrative. This will, of course, depend on economic growth in these countries.
Why are they in the news?
In a recent blog, investment expert Mark Mobius of Franklin Templeton Investments, wrote: “Frontier markets represent what emerging market countries such as Brazil, Russia, India and China were 20-25 years ago.” The blog went on to say that these markets can make for attractive investment destinations because these are typically more exposed to their domestic economic dynamics than to global conditions. As the global economy is growing at a slow pace, high-growth frontier markets are drawing interest.
Frontier markets are not limited to any one part of the globe but are spread across regions. To name a few, countries in Eastern Europe such as Bulgaria, Croatia and Romania are part of this basket, along with the United Arab Emirates, Sri Lanka, Kenya and Argentina.
Tracking these markets
There are equity market indices that have been created to represent these frontier markets. MSCI Frontier Market Index and FTSE Frontier 50 Index are two such indices.
Typically, frontier market indices trade at a price-earnings (P-E) multiple and a price-to-book value that is much more discounted than a comprehensive world index. For example, the MSCI Frontier Markets Index currently trades at a P-E of around 13.13 and the MSCI World Index trades at a P-E of 17.86 times.
As of now, there is no fund available in the domestic market that specifically gives you exposure to frontier markets.
One must also note that investing in these markets is a matter of high-risk high-return, and should be looked into only by seasoned investors and asset managers.
