In an extension of a trend that started in earnest last year, the iShares MSCI Frontier 100 ETF (NYSEArca: FM) is keeping its head above water even as it emerging counterparts flail.
Heading into the start of trading Monday, FM was up 1.2% this year compared to an average loss of just over 8% for the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). That is not new territory for FM, which spent 2013 crushing EEM and VWO. [Frontier Markets Still Have Fans]
FM has been able to be significantly less bad than its emerging rivals despite the recent ills of Argentie stocks. Argentina, South America’s third-largest economy, is FM’s sixth-largest country weight. The Global X FTSE Argentina 20 ETF (NYSEArca: ARGT) is off another 3% Monday on volume that is nearly quadruple the daily average.
ARGT has lost nearly 13% in the past five sessions, slipping below its 50- and 200-day moving averages, as the Argentine peso currency has rapidly depreciated. That depreciation is expected to continue on reports the Argentine government is unlikely to intervene in the currency market.
The government is allowing the market to adjust prices after spending billions of U.S. dollars to buffer the economy. The country’s foreign reserves have declined at a $1.1 billion per month rate over the past year and now sits at a seven-year low of $29.3 billion. [Argentina ETF Plagued by Peso Plunge]
Argentina is just 4.1% of FM’s weight, but there are other areas of possible concern for the ETF as 2014 moves along. Nigeria, 13.6% of the fund’s weight, was Africa’s top-performing equity market last year. Pakistan, 4.3% of FM, was the fifth-best market in the world in 2013. With markets such as China, Brazil and South Korea floundering, investors could start fretting about the ability of less liquid frontier markets to whether a prolonged emerging markets slump. [A Soaring, Hard to Reach Market]