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S&P launches first investible index for frontier equity markets

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Global index provider Standard & Poor’s has announced the launch of the S&P Select Frontier Index, the first investible index covering a broad range of frontier equity markets acro

Global index provider Standard & Poor’s has announced the launch of the S&P Select Frontier Index, the first investible index covering a broad range of frontier equity markets across emerging Europe, Asia, South America and the Middle East.

The S&P Select Frontier Index is comprised of 30 of the largest and most liquid companies from countries with smaller economies or less developed capital markets than traditional emerging markets, and which as a result have previously been excluded from most emerging market benchmarks and investment funds.

Alka Banerjee, vice-president of Standard & Poor’s Index Services, says the S&P Select Frontier Index is designed to meet the needs of increasingly sophisticated investors seeking to create index-linked products for frontier markets that have the potential for similar or greater returns than other better known developed and emerging markets. The S&P Select Frontier Index is a subset of the benchmark S&P Extended Frontier 150 Index.

‘Liquidity has increased tremendously in frontier markets since 2001 as restrictions on foreign investment have been relaxed and returns have outpaced both developed and emerging markets over the last decade,’ Banerjee says.

‘Less correlated to global economic cycles than their more developed counterparts, the combination of accelerating economic growth, increased government focus on privatisations and heightened IPO activity provides an attractive investment environment for those seeking alpha and diversification benefits.’

The universe from which index candidates are drawn comprises publicly-listed companies from 11 markets in the Standard & Poor’s Emerging Market Data Base that are generally accessible to foreign investors but excluded from the S&P/IFCI Emerging Markets Index.

At launch, the S&P Select Frontier Index includes companies from Bulgaria, Cambodia, Colombia, Jordan, Kazakhstan, Pakistan, Panama, the United Arab Emirates and Vietnam. The biggest country weightings are Pakistan (28.97 per cent), UAE (23.12 per cent), Jordan (13.23 per cent), Vietnam (11.54 per cent) and Panama (7.74 per cent), while the top constituents are MCB Bank (Pakistan), Emaar Properties (UAE) and Copa Holdings (Panama).

To be eligible for inclusion in the index, a company must have a minimum float-adjusted market capitalisation of USD100m, a minimum average daily value traded of USD2m and a minimum of 15 days traded over the previous six months. Constituent weights are driven by liquidity and size.

Standard & Poor’s Index Services offers a wide variety of investible and benchmark indices including the S&P 500, an index with USD1.3trn invested and USD4.8trn benchmarked, and the S&P Global 1200, a composite index comprising seven regional and country headline indices.

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