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February 27, 2012 at 07:47 AM
While small-cap stocks are benefiting significantly in the latest market rally, small market indexes are being left behind.
The best start to the year in two decades for stocks finds so-called frontier markets lacking consumer confidence and, as a result, severely underperforming.
“All nine of the world’s worst-performing equity indexes this year are in frontier countries, where the average stock market value of $30 billion is about 95% less than in emerging nations,” Bloomberg reports. “While the MSCI All-Country World Index (MXWD) jumped 11%, gauges in Bangladesh (DHAKA) and Sri Lanka sank at least 8% as interest rates increased. Nigeria’s stock index fell 1.1% after union strikes and attacks by Islamic militants. Frontier-nation stocks trade at the lowest valuations since at least 2008 versus emerging-market shares.”
“On a purely tactical basis, we have actually reduced exposure in frontier markets,” the news service quotes Antoine van Agtmael, who coined the term “emerging markets” in 1981 and now oversees about $7.1 billion as chairman of Ashmore EMM in Arlington, Va. “The larger, more liquid markets offered relatively more compelling investment opportunities.”
Frontier markets are typically defined as those that are peripheral emerging market countries in the early stages of the industrialization process. They include countries like Mongolia, Kazakhstan, Cambodia, Bangladesh, Nigeria, Ghana, Georgia and Estonia–nations that in many cases would not even be thought of as tourist destinations, let alone investment targets.
