More risk in sight as key frontier index faces re-jig

miércoles 16 de abril de 2014 10:14 GYT

By Carolyn Cohn

LONDON, April 16 (Reuters) - Life may be about to get even riskier for investors in some of the world's riskiest markets.

Investors could find it harder to use the closely watched MSCI frontiers index to benchmark their performance when it loses major constituents next month.

The upgrade of two large markets, the United Arab Emirates and Qatar, to emerging market status, will cut the number of constituents in the frontier index to 24 and give a hefty weighting to only two - Kuwait and Nigeria.

The decision comes after MSCI frontier markets as a whole have returned 12.5 percent this year in dollar terms, compared with a tiny 0.3 percent rise in emerging stocks and developed markets' 0.1 percent dip.

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But those returns incorporate a wide range of performance, from 27 percent growth in Bangladesh to a 9 percent loss in Nigeria. Currency fluctuations may also play a part, with the weakening naira feeding into Nigeria's dollar-based losses, for example.

The UAE posted returns of 35 percent and Qatar made gains of 21 percent.

In the short-term, market players say, investors are likely to diverge further from the benchmark weightings to reflect more closely their views on frontier markets, potentially opening themselves up to underperformance against the index.   Continuación...