What are the risks and opportunities of investing in frontier equity markets.
Topics covered include:
- What are the criteria used to determine whether a country’s stock market is considered a frontier, emerging, or developed market
- Why some countries aren’t included in any MSCI stock index
- How large are frontier markets in terms of population, economic output, and equity markets
- How frontier market’s favorable demographic profile make them attractive, but might not lead to higher investment returns
- What are the risks of investing in frontier markets
- How expensive or cheap are frontier markets
- What have been frontier market’s historical returns, volatility, and maximum drawdowns
- What are ways to invest in frontier markets
Welcome to Money for the Rest of Us. This is the personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is Episode 347. It’s titled, “Should You Invest in Frontier Markets?”
MSCI Index Classifications
This week, MSCI, a leading provider of indexes and analytics is issuing its annual classification review report. In this report, MSCI classifies a particular country’s stock market, ranks it whether it’s a developed market, an emerging market, a frontier market, or a standalone market. Those classifications then are used to determine what index the particular country or market is in. We’ll look at the differences between those broad categories.
But this is a big deal for countries because if they move up to a developed market, or from frontier to emerging markets, that can attract additional investment and capital flows into the country. Conversely, there’s the potential to be downgraded to a lower-tier market. MSCI analyzes over 80 markets. 23 are considered developed and comprise the MSCI world index. There are 27 emerging markets that make up the MSCI Emerging Markets index, and combined, the 23 developed countries and the 27 emerging markets countries, make up the MSCI All Country World Index. Except that index, the ACWI, doesn’t actually include all countries. There are 27 frontier markets and 11 standalone markets which don’t even meet the criteria for inclusion in the Frontier Market Index.
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