e-fundresearch.com: To which extent do frontier markets still live up to their reputation as lowly correlated portfolio diversifiers?
Dominic Bokor-Ingram: The long run correlation between Frontier and emerging and developed(which are highly correlated) markets remains at around 0.4. Even in times of high market turmoil such as the 2008 financial crisis, this correlation only reached 0.7. The reason for this low correlation is that the driving factors behind Frontier markets tend to be domestic rather than global factors as these countries are all at a relatively early stage in their development with low levels of foreign capital in their financial systems. The Frontier markets universe is also very diverse in terms of the structures of the underlying economies as highlighted by the recent oil price fall. Whilst negatively impacting oil producing countries like Nigeria and the Middle Eastern countries, the likes of Sri Lanka, Pakistan and Kenya were huge beneficiaries.
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