Money is flowing out of risky emerging market stocks
(NYSEARCA:VWO), and guess where it's going? Into even riskier
frontier market debt and stocks (NasdaqGIDS:PMNA).
"Investors in America and Europe were hungry to buy
dollar-denominated debt offering juicy yields. Zambia drew $12
billion of orders for a ten-year bond paying only 5.4%.
Pension-fund trustees and consultants now ask how much money they
should allocate to the frontier."
Frontier markets (NYSEARCA:FM) are tiny undeveloped countries
whose stock market is typically small, risky, and illiquid.
Sometimes referred to as "pre-emerging market countries," Argentina
(NYSEARCA:ARGT), Egypt (NYSEARCA:EGPT), Nigeria (NYSEARCA:NGE), and
Kuwait are among the countries in this category.
What made emerging market stocks a source of excitement in the
1990s has now found a new place in volatile and unestablished
frontier markets, according to Charlie Robertson at Renaissance
High risk taking along with excessive leverage is associated
with market tops.
A contraction in risky investment behavior, not an increase, is
the sure sign of a correction and possible bottom. And by that
measure, frontier markets in their present state have a long way to
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