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Frontier markets lure – and reward – hardy investors

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Consider last year's stellar returns from this sector: In 2007, the S&P/IFCF frontier markets composite of 24 countries' markets posted a 45.6 percent total return, beating S&P indexes that track emerging and world markets.

Among specific frontier markets, Bangladesh's led the pack last year, with an eye-popping 128.3 percent gain. In addition, Côte d'Ivoire's market soared 122.7 percent; Ukraine's market jumped 110.6 percent; and Mauritius's market catapulted 100.6 percent, according to Standard & Poor's data. The worst performer, Estonia, posted a 14.2 percent drop.

Such frontier market showings have sparked an array of responses: new frontier market indexes from Standard & Poor's and from MSCI Barra, more investment funds for these arenas, and a gush of money raining down on at least some of the markets.

According to data of EPFR Global, which tracks fund flows and allocations globally, net inflows from around the world into African regional equity funds hit $650 million in 2007, up from about $100 million the year before. Moreover, Middle East regional equity funds drew net inflows of $402 million last year, versus $130 million of outflows in 2006.

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