2015’s Top 5 Frontier Markets

By James Eugene

2015 has been an eventful year for both emerging and frontier markets, with the general consensus being that, on average, these markets have under-performed. The MSCI Frontier Market Index plummeted by 17.67% this year. Many of the declines have been fueled by: a decline in the price of commodities; China’s blip halfway through the year; the possibility (and implementation) of an increase in US Interest Rates; and finally a persistent strengthening of the dollar against frontier market currencies.

Regional Analysis

Before we take a look at the top five performers, here is a brief overview of the average performance of the 39 frontier markets we have compiled statistics from for each region.

• Caribbean & Latin America proved to be the best performing region, with two out of the top three frontier markets being from this region
• Interestingly, the best and worst performing  nations (Jamaica and Panama respectively) in the Caribbean & Latin America posted a difference of  101.6%.
• The top 10 frontier markets, out of the 39, were the only countries whose stock markets made positive gains.
• There were no Middle Eastern nations in the Top 10, therefore there were none in the region whose stock market ended up higher year-to-date.

Best Performing Frontier Markets In 2015

1st – Jamaica (96.27%)

Jamaica has officially earned the title of being the best performing frontier market in 2015. The Jamaican Stock Exchange (JSE) has turned the tide on two disappointing years to almost doubling this year, with many of its constituents also doubling in value. The JSE has increased by 96.27%, ranking it as a top performing stock exchange in the world. According to the Jamaica Observer, financial analysts are upbeat and positive about how the market will perform in 2016.

There are many factors behind the bullish run. The first major increase occurred in May when the introduction of online trading on the exchange allowed investors to easily buy and sell stocks, view performance and monitor account balances. This was further driven by the JSE’s targeting of the Jamaican diaspora in Canada by allowing them to participate in trading on the stock exchange and also to benefit from any tax credits.

External factors have also played a major part in the record levels of activity in the market. For example, the fall in oil and energy prices has provided a positive effect for the Jamaican economy, which is a net importer of oil. The effects of a fall in oil prices played a significant part in Jamaica recordings its first current account surplus in over a decade.

2nd – Latvia (45.66%)

Latvia has finished the year as Europe’s best performing frontier market. In the third quarter of 2015, the Riga Bourse was the stock market that had grown the most globally. The reason? One stock.

Ventspils Nafta Tranzits’ share price tripled over a 15 day period after Vitol Group, the largest independent energy trader in the world, increased its stake in Latvia’s pipeline operator by 43.25%. Due to Ventspils’ hefty weighting in the bourse – around 36% – the increase in price filtered through to the stock market, increasing it by almost 30%.

Latvia’s market reforms have had a positive effect on its stock market, but recent political changes could make or break it in 2016. Will reforms continue, or will policies that (inadvertently) reverse the trend be implemented?

3rd – Argentina (36.09%)

Argentina has had an eventful year. Unlike its neighbour Brazil, the South American nation has posted a positive return on its stock market at the end of the year, finishing 36% up.

A major talking point has been the recent election, which saw the more pro-business, market friendly Mauricio Macri succeed in taking over from Cristina Fernández de Kirchner. Prior to his victory, ETFs rallied after polls suggested that Macri would be victorious against election rival Daniel Scioli. Since assuming office however, the index has dropped 20% from its November high, mainly due to Macri fulfilling his promise of lifting capital controls and exports taxes, weakening the Argentine Peso in the process.

2016 will be an interesting year for Argentina. Will Macri be able to gain the confidence of both domestic and foreign investors?

4th – Malta (33.02%)

The tiny nation of Malta also makes the list. The Malta Stock Exchange increased by a third in 2015, with three stocks – Mapfre Middlesea, Medserv and RS2 Software – more than doubling in value over the year.

In July, ratings agency Standard & Poor’s upgraded its outlook on Malta from stable to positive, while maintaining its BBB+ credit rating.

5th – Slovakia (31.11%)

Numerous businesses in Slovakia were subject to interest from foreign investors over the past year. For example, a Chinese based firm acquired a 5% stake in J&T, a large finance group; while German telecom operator Deutsche Telekom acquired 49% of Slovak Telekom in the summer.

Slovakia has also seen positive results from a macroeconomic perspective. GDP growth reached 3%, up by 0.6% from last year and the unemployment rate reached a seven year low, dropping from 13.2% in 2014 to 11.2%. The nation also managed to sell off bonds at negative yields after managing to most interest rates to record-low levels.

The main challenge for the Slovak economy in 2016 is how global uncertainty and, in general, a negative global outlook would impact the economy, especially its exports industry. Slovakia will be hoping for positive news from major trading partners in the Eurozone, especially their most important trading partner Germany.