How Frontier Market ETFs Surged As EMs Plunged [Market Vectors Gulf States(ETF), Claymore/BNY Mellon Frontier Markets ETF]

Gulf ETFs

Companies in the Gulf region have been reporting strong earnings in the past few years and property markets have shown improvement of late. Last year, MSCI upgraded UAE and Qatar to emerging market status from frontier market. The upgrade is expected to result in massive increase in capital flows to the region. (Read: Can Gulf ETFs keep glowing?)

Due to expansionary fiscal policies and low interest rates, economic activity has remained steady in recent years. Per IMF, Qatar will grow at 5% this year, while Saudi Arabia and the UAE will grow about 4%.

UAE and Qatar peg their currencies to the US dollar and while Kuwait pegs its currency to a basket of currencies, the basket is believed to be heavily weighted towards the greenback. As a result these currencies have remained rather stable.

Market Vectors Gulf States Index ETF Fundamentals (MES) and WisdomTree Middle East Dividend Fund (GULF) are the two options available to investors.

Vietnam

Vietnam continues to be the main beneficiary of the migration of low-end manufacturing out of China as the producers try to take advantage of wages that are about half of that in China. The shift in China’s policy to focus more on domestic consumption will also benefit Vietnam as an outsourcing center.

A pickup in developed economies is good for the country as they account for about half of country’s exports, mainly apparel and electronics. Van Eck Market Vectors Vietnam ETF (VNM) is the only ETF option available to investors to access Vietnam’s equity markets.

Broad Frontier Market ETFs

Guggenheim Frontier Markets ETF (FRN) seeks to match the performance of the BNY Mellon New Frontier DR Index. BNY Mellon defines frontier market countries based on the GDP growth, per capita income growth, inflation rate, privatization of infrastructure and social inequalities.
However the top countries included in the ETF—Chile (43%), Colombia (15%), Egypt (11%) and Peru (9%)–which account for about 78% of the holdings are “emerging” markets” and not “frontier” markets per MSCI and S&P.

PowerShares MENA Frontier Countries ETF (PMNA) tracks the performance of liquid companies in MENA (Middle East and North Africa. This fund is being closed  on February 18, 2014.

iShares MSCI Frontier 100 Index (FM) tracks the MSCI Frontier Markets Index, which is dominated by Gulf states–with Kuwait (28%), Qatar (17%), and the UAE (11%) in the three spots out of top four, with Nigeria (13%). But remember, Qatar and UAE will be out of the frontier market index in a few months.

This article is brought to you courtesy of Neena Mishra From Zacks.com

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