Why the world’s fledgling stock markets might not be as risky as you think


What’s the most volatile investment you can put your money in? Until bitcoin made headlines last year with its dramatic price rise, many would have answered: frontier markets.

Comprising nations that are just beginning their journey of economic expansion, these countries are those considered on the rung below the “emerging” markets of Brazil, India, China and Russia.

The assumption has long been that investing in these less developed countries is riskier and more volatile – but data from FE, a financial analytics firm, suggests that may not be entirely the case.

Robert Wilson of FE said frontier markets’ high volatility is a common misconception. Data shows that companies in these countries have consistently been less volatile than emerging markets in the past 10 years.

Using a score that measures fluctuations in average weekly returns, the frontier marketsindex scored 15, compared to 22.7 for the FTSE All-Share and 23.6 for the MSCI emerging markets index. The higher the score, the more volatile the market.

Likewise, over shorter periods frontier markets were less volatile than expected. Since 2015, the index scored 9.9, compared to 15 for the FTSE and 17.7 for emerging markets.

Note that this does not mean frontier markets have produced the highest returns, but investors will have experienced a smoother ride.

The general lack of volatility is a reflection of the fledgling nature of the national economies in the index, said Mr Wilson. Their economies tend to be more domestically focused, so are more protected, or at least less affected, by world events compared to more developed countries with multinational companies.

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