As reported by The International Herald Tribune, “frontier” markets are gaining even more interest than before in light of the recent turmoil in more developed markets.  As the article notes, what has started to come home to investors is that frontier markets, which are remarkably diverse, have achieved these good returns with low correlation to the developed markets:

“…From October 2001 to last September, the S&P IFC Global Frontier Markets index – including 20 frontier economies like the United Arab Emirates, Vietnam and Nigeria – rose 553 percent, surpassing even the healthy 430 percent gain by the benchmark for emerging markets, the MSCI Emerging Market index for the same period.

…For the month of January, as markets from the Dow Jones industrial average to the CAC 40 sank, the IFC frontier index slipped just 2.8 percent.

One reason for the appeal is the documented lack of correlation with developed and emerging markets.

…For those who invest across the range of frontier markets, volatility is reduced because the frontier category is extremely diverse. Members differ widely from one another in the stages of economic development, size of the economy and population, political stability and corporate governance, resulting in widely different performance and valuation. By contrast, the mainstream emerging markets mostly are politically stable and have attained certain levels of legal and regulatory structures necessary to run markets.

“There are huge diversification benefits to frontier markets,” said Moody of Progressive Asset Management. The IFC index contains 20 frontier markets, and “the range of performance in any given year is quite significant,” he said. “In 2004, Ukraine was up something like 170 percent. The worst market was Kenya, which was down little over 10 percent. In 2005, the best market was Lebanon, which was up 110 percent up. Ghana was your worst market, which was down 30 percent, and so on….”