More Frontier Stocks Gains Seen After Best First Half Since 2007

Frontier-market stocks posted their strongest first-half performance in 18 years, with the MSCI gauge of 25 smaller and less liquid equity markets advancing 17% in the first six months, marking its largest rally since 2007. Strategists anticipate further gains, attributing the surge to a weaker dollar, relative insulation from global risks, and a reduced threat of an oil-price spike. This trend highlights the potential for continued outperformance in these less-liquid equity markets.

Analysis

Frontier-market equities have demonstrated significant outperformance, with the MSCI gauge of 25 smaller and less liquid equity markets advancing 17% in the first half of the year. This marks the strongest H1 performance for the asset class in 18 years, a rally not seen since 2007. The advance is underpinned by a confluence of favorable macroeconomic conditions, specifically a weaker U.S. dollar, the markets' relative insulation from global systemic risks, and a reduced threat of an oil price spike. The positive sentiment is further reinforced by market strategists who are now predicting more gains to come, suggesting the current momentum may be sustained.

Key Decisions for Investors

• Given the strong 17% first-half rally and positive strategist outlook, investors should consider initiating or increasing allocations to frontier-market equities to capture potential continued upside.
• The investment thesis is contingent on a weaker dollar, low correlation to global risks, and stable oil prices; closely monitor these three macroeconomic drivers as a reversal could undermine the rally.
• Acknowledge the inherent characteristics of frontier markets, such as lower liquidity and potentially higher volatility, and ensure any allocation is sized appropriately within a diversified portfolio.