Frontier managers target 'off-benchmark' countries as index prepares for shake-up

MSCI reviewing index constituents

Frontier market managers have said their benchmarks are becoming "increasingly irrelevant" as major index constituents get upgraded to emerging markets, with implications noted for passive investors in the region.

Managers are also concerned about increasing concentration risk following the upgrades, due to a shortage of markets mature enough to be given frontier status and replace incumbents. Frontier markets are upgraded when they have met requirements on four factors: ease of capital flows, openness to foreign ownership, stability of institutional framework, and efficiency of operational framework. MSCI also looks at areas such as market entry, organisation and infrastructure. Sector promotion In May 2014, MSCI promoted UAE and Qatar to emerging markets status, heavily impacting the Fronti...