Frontier Markets Dangers

As of September 2013, the MSCI Frontier Markets Index (141 companies) was valued at $123 billion, a valuation < 1/3 of Apple. Being small can have negative consequences. For example, it has been estimated that it would take > 10 days to liquidate a $100 million position in a frontier market (but just an hour to dispose of a similar position in an emerging market).

The bid/ask price for frontier stocks tends to be wider. In the past, some frontier market countries have nationalized companies and even entire industries, wiping out most or all shareholder equity. Some frontier markets ETFs are heavily concentrated in just a handful of companies. Frontier markets represent ~ 0.4% of the world’s stock markets. Investors should plan on staying with these types of funds for at least 10 years.