1/X - So #Pakistan is under review for "downgrade" to Frontier index. Personally I think it would be a good move. At 2bps of MSCI EM it will continue to be ignored. A few observations on MSCI Frontier Index and its use:
#EmergingMarkets #FrontierMarkets
#EmergingMarkets #FrontierMarkets
2/X - There is a structural flaw in the algorithm deciding country weights. As opposed to MSCI EM where 50% free float is required, in FM index a mere 7,5% free-float is required. Not a brilliant idea as it gives a higher weight to "zombie markets" with zero liquidity.
3/X - It is ridiculous that #Bangladesh with >150 musd a day has 1/3 of the weight of #Kenya with 6 musd.
There is a long row of markets where annual traded volume is far below 10% of mcp and whose weights are far too high vs what their equity markets offer.
5/X - Increasingly Frontier markets funds are looking beyond the FM-index. When straying outside the index they mainly look towards LMIC-countries (low- and lower-middle-income). #Indonesia #Philippines #Egypt #Pakistan the most common examples.
6/X - MSCI really need to rethink their index process for #FrontierMarkets unless they want the benchmark to completely lose its relevance. Who wants to own a benchmark where the only thing in common is poor liquidity? And still the ETF has USD 460m in assets🤣
7/X - The rise of #China has killed most other #EmergingMarkets constituents. You're now >40% China if you own the ETF. Maybe it is time for a new "Smaller Emerging Markets benchmark", catching the next gen EM:s and with more consideration to actual liquidity, rather than theory
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