EM News: Building Frontier Markets Access


By Gordon Platt

The development of new frontier indexes in both the fixed-income and equity markets is making it easier for institutional investors to trade often risky and illiquid securities out of just-developing markets.

MSCI introduced a new equity index, the MSCI Frontier Markets 100 Index, this spring—made up of the 100 largest and most liquid companies in its broader frontier markets index. And J.P. Morgan launched the Next Generation Markets Index last December, which tracks dollar-denominated government bonds issued by 18 frontier markets.

The new MSCI index will be used as the basis for a future BlackRock iShares exchange-traded fund. “It is good that MSCI is reforming the basic framework of its frontier index, but this does not alter the fact that the free float [shares available for trading] is limited in many of these companies,” notes Gary Kleiman, senior partner at emerging markets consultancy Kleiman International in Washington, DC. “A lot more markets need to be added to avoid overconcentration in what is already a volatile area.”