Investors Hungry For Risky Frontier Markets

Money is flowing out of risky emerging market stocks (NYSEARCA:VWO), and guess where it’s going? Into even riskier frontier market debt and stocks (NasdaqGIDS:PMNA).

The Economist reports: “Investors in America and Europe were hungry to buy dollar-denominated debt offering juicy yields. Zambia drew $12 billion of orders for a ten-year bond paying only 5.4%. Pension-fund trustees and consultants now ask how much money they should allocate to the frontier.”

Frontier markets (NYSEARCA:FM) are developing countries whose stock market is typically small, risky, and illiquid. Sometimes referred to as “pre-emerging market countries,” Argentina (NYSEARCA:ARGT), Egypt (NYSEARCA:EGPT), Nigeria (NYSEARCA:NGE), and Kuwait are in this category.

What made emerging market stocks a source of excitement in the 1990s has now found a new place in volatile and unestablished frontier markets, according to Charlie Robertson at Renaissance Capital.

Riding the frontier

The jump in risk appetite for securities from unproven frontier market countries is a red flag and chasing performance has replaced prudent risk management.

Are frontier markets still a good buy?

A contraction in risky investment behavior, not an increase, is an ideal entry point for new investment. That’s because fear is typically high and prices are generally falling. And by that measure, frontier markets don’t match up.

The ETF Profit Strategy Newsletter uses technical, fundamental, and sentiment analysis along with market history and common sense to keep investors on the right side of the market. In 2013, 70% of our weekly ETF picks were gainers.

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Ron DeLegge is the Founder and Editor of ETFguide.com

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