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Mémoire
Bachelor thesis

Risks and opportunities of investing in frontier markets

SONAR|HES-SO

    2017

61 p.

Mémoire de bachelor: Haute école de gestion de Genève, 2017

Investissements
Marchés (économie politique)
Frontier markets are generally in earlier stages of economic and capital market development compared to the better-known emerging markets. To invest in these markets, it is advisable to take into consideration the specific behaviour of frontier markets, the risks that characterise investments in these markets and their organization, as well as the particularities of their regulations. With regards to the stock markets, the comparative advantage for investors is based on a high risk-return ratio, which justifies investing in higher risk and less liquid restricted markets rather than in emerging and developed markets. In order to establish this ratio, benchmarks are the starting point. Given that the Morgan Stanley Capital International (MSCI) is the most widely used index, monthly prices available on its database are analysed to determine and compare performances of frontier, emerging and developed markets. Concerning the frontier markets, the index examined is the MSCI Frontier Emerging Markets. The main reason is that it includes four emerging countries categorized at the border between frontier and emerging markets where many interesting investment opportunities lie. The results obtained are unexpected given the reputation of frontier markets of having high returns despite showing high volatility. In fact, it was confirmed prior to the financial crisis of 2008 when frontier markets outperformed emerging and developed markets with a performance of 36.13 % and a Sharpe ratio of 2.03. However, since the financial crisis, frontier markets have experienced only weak recoveries and they show poorer performances than those of emerging and developed markets. Furthermore, the volatility observed in the MSCI Frontier Emerging Markets Index was higher than that of the MSCI World Index but it was surprisingly lower than the MSCI Emerging Markets Index. The reason for these unexpected results could be explained by the low liquidity, the Index’s method of capitalization and the economic situation post-crisis. However, investing in those markets remains profitable. Indeed, the long-term growth potential and the diversification benefits are the main reasons for the push towards investment in frontier markets equities.
Language
  • English
Classification
Economics
Notes
  • Haute école de gestion Genève
  • International Business Management
  • hesso:hegge
License
License undefined
Identifiers
  • RERO DOC 306005
  • RERO R008735985
Persistent URL
https://folia.unifr.ch/global/documents/314663
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