Botswana to gain Frontier Market status

Brian Benza
Staff Writer | Friday November 14, 2008 00:00

 

The term 'frontier market' is commonly used to describe equity markets of smaller and less accessible, but still 'investable', countries of the developing world.

Frontier or pre-emerging equity markets are typically pursued by investors seeking high, long-run return potential and low correlations with other markets.

According to Morgan Stanley Capital International (MSCI) Inc.'s stock benchmark for frontier markets, Ghana, Botswana, Jamaica and Trinidad & Tobago may gain so-called frontier market status by May 2009.

The classification was created by MSCI for stock markets that have less-developed economies and financial markets than emerging markets, and that typically have more restrictions on foreign stock ownership.

The Botswana Stock Exchange's Domestic Companies Index(DCI), which includes 16 companies valued at about $3.5 billion, has declined by 3.7 percent this year. Standard Chartered Bank of Botswana, the country's third-biggest lender and the biggest stock in the index, has gained 1.3 percent.

In the month of October, only four counters finished the month in positive territory, with Stanchart pushing 5.6 percent to 1,900thebe and Turnstar in close pursuit, gaining 5.2 percent to 142thebe.

Covering 19 countries, the MSCI Frontier Market Indices are designed to track the performance of a range of equity markets that are now more accessible to global investors.

They aim to achieve a broad representation of the investment opportunity set while taking into consideration investability requirements within each market.

Standard Indices, that aim to exhaustively cover around 85 percent of the investable equity universe of each market, are calculated for all countries in the MSCI Frontier Market Indices.

Ghana's All-Share Index is the world's best performing stock benchmark this year and one of only three tracked by Bloomberg globally that has advanced this year in dollar terms.

Shares in the country of 22.5 million sandwiched between Togo and the Ivory Coast have gained 31 percent in 2008 in dollars.

Frontier markets have plummeted 46 percent this year as the worst financial crisis since the 1930s buffeted companies in markets typically less correlated to industrialised economies.

According to the MSCI report, Lithuania and Serbia will join MSCI Inc.'s stock benchmark for frontier markets this month, which may increase investment by money managers that oversee more than $3 trillion in assets.The two nations, whose companies have a combined capitalisation of $1 billion based on their MSCI country indexes, will be added in the 19-country MSCI Frontier Market Index after the close of trading on November 25, according to a statement released on the New York-based index provider's Web site this week.

The MSCI Lithuanian Index, valued at $855 million based on shares that are freely traded, includes just two stocks: AB TEO LT, the country's biggest communications company, and AB Rytu, the operator of power grids in eastern Lithuania.

Shares of both Vilnius-based companies have fallen 40 percent and 51 percent respectively this year.

Two banks make up the MSCI Serbia Index, which has a market value of $166 million on a so-called free-float adjusted basis. Belgrade-based Komercijalna Banka AD, Serbia's biggest bank by market value, has lost 71 percent of its value this year. AIK Banka AD has dropped 72 percent in 2008.(Additional reporting by Bloomberg)