Index Investing News
Thursday, May 29, 2025
No Result
View All Result
  • Login
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
No Result
View All Result
Index Investing News
No Result
View All Result

Frontier and Emerging Markets: Inflection Points

by Index Investing News
December 13, 2022
in Investing
Reading Time: 6 mins read
A A
3
Home Investing
Share on FacebookShare on Twitter


Today’s spiking inflation, rising interest rates, and billion-dollar investment frauds are good reminders that a clear understanding of the past helps us better anticipate the future. Indeed, it can provide a reliable foundation on which we can develop portfolio-allocation decisions.

That’s why we need to have a firm grasp on different equity markets’ past relative and absolute performance. After all, what drives the market cycle if not the relative under- and outperformance of different assets?

With that in mind, the equity market universe is variously categorized by region, country, sector, market capitalization, and style. The well-established geographic segmentation divides the world into frontier, emerging, and developed markets.

What determines a country’s designation? The MSCI Market Classification Framework focuses on three criteria: economic development, size and liquidity, and market accessibility. The latter is a function of three components: openness to foreign ownership, ease of capital inflows and outflows, and the efficiency and stability of the institutional framework.

It hasn’t always been easy or cheap to invest at the regional or country level, but thanks to technological advances and the development of exchange-traded funds (ETFs), retail investors now have much better, if not limitless, access to the various segments of the equity market universe.

So, how have these geographic segments performed relative to one another in recent market cycles?


Benchmark Investability

Market Index Investable ETF
MSCI ACWI and Frontier Markets Index Not Available
MSCI ACWI iShares MSCI ACWI ETF (ACWI)
MSCI World Index iShares MSCI World ETF (URTH)
MSCI Emerging Markets iShares MSCI Emerging Markets ETF (EEM)
MSCI Frontier Markets Not Available
MSCI Frontier & Select Emerging Markets iShares MSCI Frontier and Select EM ETF (FM)

Introduced on 7 April 2003, the iShares MSCI Emerging Markets ETF (EEM) had a cumulative return of 381% through 31 December 2010. By comparison, the iShares Core S&P 500 ETF (IVV) generated a 66% return over the same sample period.

So, in that particular market cycle, emerging markets did much better than their developed counterparts.


EEM vs. IVV
7 April 2003 to 31 December 2010


But let’s take the examination one step further and use intermarket analysis to compare the relative performance, or relative strength, of EEM and IVV. This way we can differentiate among distinct trend periods by identifying the major inflection points on their price charts. The relative strength of EEM to IVV over the sample period shows a key pivot in early 2011, as detailed in the following chart.


Relative Strength of EEM vs. IVV
12 April 2003 to 7 December 2022


Emerging markets as a category did better than the S&P 500 until that 2011 inflection point. Since then, the downward slope demonstrates their underperformance.

Frontier markets generated better returns than other geographic segments at various times as well. For example, from 2002 to 2007, the MSCI Frontier Markets Index beat both the MSCI EM and MSCI World Indexes. Some frontier markets may again eclipse both developed and emerging markets.

Banner for CFA PC FinTech, Data and AI courses

This kind of intermarket analysis has applications well beyond geographic segments. We can use it to identify similar inflection points relative to the S&P 500 in the energy, technology, and commodities sectors. For example, the Energy Select Sector SPDR Fund (XLE) lagged the S&P 500 for years. But the relationship pivoted in early 2021, and the energy sector proxy has since outpaced the benchmark index.

The technology sector’s relationship with the S&P 500 flipped in the opposite direction. After years of beating the S&P 500, our tech proxy, the Technology Select Sector SPDR Fund (XLK), began to fall behind early in 2022. As for commodities, the S&P GSCI Commodity-Indexed Trust ETF went from lagging to outperforming the S&P 500 in late April 2020.

Analysis like this can inform tactical asset allocation decisions. We can adjust the percentage of the portfolio held in an asset class or across asset classes based on these changing market opportunities.

Of course, we have to understand both the index and the relative performance of its underlying constituents. Country factors, for example, may have more influence on returns than industry factors, while returns in a frontier market country may result more from country-specific than global factors. As such, active investors should examine the individual country characteristics rather than simply allocate to a broad frontier or emerging market index. Single country indexes are becoming more accessible through ETFs, but not all are equally investable. For example, Saudi Arabia’s stock exchange, the Tadawul, operated long before the iShares MSCI Saudi Arabia ETF (KSA) began trading in 2015.

Climate Finance Professional Learning course banner

There is a larger lesson to these inflection points (when for whatever reason, the switch is flipped and the dynamic between geographic segments changes): Relationships in the global equity market universe are not static. There will be critical pivots in the future just as there were in the past. One segment or another will have periods of sustained outperformance relative to their peers. That’s why adjusting our allocations to emerging or frontier markets may at times enhance risk-adjusted returns.

If you liked this post, don’t forget to subscribe to Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/ Luigi Masella / EyeEm


Professional Learning for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker.

Ted Stephenson, CFP, CFA

Edward “Ted” Stephenson, CFP, CFA is a full-time professor at George Brown College in Toronto. As a dual-professional, he has served as a consultant to not-for-profit organizations and EdTech companies. Stephenson is a CFA® Institute approved ethics instructor and has been involved in both coaching and judging at ethics and research challenges. He has lived and worked in frontier, emerging, and developed markets and is passionate about accessible financial literacy and investment education.



Source link

Tags: EmergingfrontierinflectionMarketspoints
ShareTweetShareShare
Previous Post

Breaking the Bubbles Without a Crash

Next Post

Winter storm forecast: Millions brace for snow, severe weather

Related Posts

The High 7 Canadian Oil Shares, Ranked In Order

The High 7 Canadian Oil Shares, Ranked In Order

by Index Investing News
May 28, 2025
0

Revealed on Could twenty eighth, 2025 by Bob Ciura Canadian oil shares have confirmed over the previous decade that they'll...

Tariffs, Inflation, and Returns: How Investments Reply to Provide Shocks

Tariffs, Inflation, and Returns: How Investments Reply to Provide Shocks

by Index Investing News
May 28, 2025
0

Tariffs have reclaimed the financial highlight. However with their timing and magnitude unsure, traders are on edge. An interesting historical...

Ladies in Alts: Main with Inspiration, Instinct, and Impression

Ladies in Alts: Main with Inspiration, Instinct, and Impression

by Index Investing News
May 27, 2025
0

Ladies investing in alternate options aren’t simply constructing wealth — they’re reshaping the longer term. With capital comes energy, and...

5 Purple Flag Dividend Champions Most Doubtless To Minimize Their Dividends

5 Purple Flag Dividend Champions Most Doubtless To Minimize Their Dividends

by Index Investing News
May 27, 2025
0

Printed on Might twenty seventh, 2025 by Bob CiuraSpreadsheet knowledge up to date each day Traders are probably acquainted with...

Learn how to Maintain Tariffs from Derailing Your Renovations (Rookie Reply)

Learn how to Maintain Tariffs from Derailing Your Renovations (Rookie Reply)

by Index Investing News
May 23, 2025
0

The financial panorama is shifting quick. With tariffs driving up materials prices, does the BRRRR (purchase, rehab, hire, refinance, repeat)...

Next Post
Winter storm forecast: Millions brace for snow, severe weather

Winter storm forecast: Millions brace for snow, severe weather

What’s New to Stream on Amazon Prime for December 2022

What's New to Stream on Amazon Prime for December 2022

Comments 3

  1. Pingback: 前沿和新兴市场:拐点 - 光速日链网
  2. Pingback: 前沿和新兴市场:拐点 - 每日金融资讯网
  3. Pingback: Frontier and Emerging Markets: Inflection Points - Euro Times

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

RECOMMENDED

6 shot and killed in rural Mississippi town, suspect in custody

6 shot and killed in rural Mississippi town, suspect in custody

February 17, 2023
‘The Recruit’ Canceled At Netflix After 2 Seasons

‘The Recruit’ Canceled At Netflix After 2 Seasons

March 6, 2025
Earnings Preview: How the brand new fiscal yr is shaping up for Cisco (CSCO)

Earnings Preview: How the brand new fiscal yr is shaping up for Cisco (CSCO)

November 5, 2024
Electreon plunges after Swedish tender canceled

Electreon plunges after Swedish tender canceled

August 30, 2023
China vows to step up fiscal help for financial system

China vows to step up fiscal help for financial system

September 26, 2024
What’s in Biden’s budget? Key highlights from the plan

What’s in Biden’s budget? Key highlights from the plan

March 10, 2023
Maximize Financial savings and Prep For Tax Season

Maximize Financial savings and Prep For Tax Season

December 21, 2024
India’s top givers | Mint

India’s top givers | Mint

October 23, 2022
Index Investing News

Get the latest news and follow the coverage of Investing, World News, Stocks, Market Analysis, Business & Financial News, and more from the top trusted sources.

  • 1717575246.7
  • Browse the latest news about investing and more
  • Contact us
  • Cookie Privacy Policy
  • Disclaimer
  • DMCA
  • Privacy Policy
  • Terms and Conditions
  • xtw18387b488

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In