Frontier Stock Market Correlations for 2014


Emerging Market stocks have taken a beating over the past year and US stocks retreated last month, but frontier markets have actually managed to move higher this month according to our Frontier Market Dashboard (although not if calculated in USD terms). Low correlation to developed and emerging markets remains one of the main reasons to invest in frontier markets, and is an area that we analyzed last year in detail.

With the beginning of 2014, we ran all our correlation matrices again to see if frontier markets were still uncorrelated from major markets.  While we used weekly data last year due to the lack of data available for some countries, it meant that there was a bit more noise when calculating realized correlations. That is why we have switched to using monthly data over the past 5 years (60 months), to establish a firmer picture of how correlated each market is to the others. We are also using the Excel Web-app to display all the tables so ensure you have Javascript enabled; you can download the data straight from the window!

Despite the change in methodology, the results were the same: frontier markets remain as uncorrelated with major markets as ever, and still present an ideal way of diversifying portfolios to increase returns without as much added risk.

Developed and Emerging Market Correlations

To set a baseline to compare later on, we first calculated the 60-month monthly correlations for major stock market indices, including the MSCI EM and FM indices as reference. Unsurprisingly, the major indices remain very correlated to each other with China a bit of an outlier, and both the EM and FM indices exhibiting an even higher correlation to US and European markets than the BRIC countries individually. In all future tables, US equities are represented by the S&P 500 while European equities are represented by the Euro Stoxx 50.


African Frontier Stock Market Correlation

Frontier African markets remains very uncorrelated with the rest of the world. While Kenya and Mauritius standout with the highest correlations (above 0.40), smaller countries like Malawi, Rwanda, and Zambia had near zero correlations. For their size, Ghana and Nigeria were both surprisingly uncorrelated at about 0.10 to developed markets.


Central & Latin American Frontier Stock Market Correlations

Perhaps due to its proximity to North America (and their shared time-zones), Latin America had the highest correlation to the US out of all frontier markets. While major frontier markets in South America like Argentina, Chile, Columbia, and Peru had correlations around 0.40-0.50, smaller nations such as Panama and Trinidad & Tobago had almost no correlation to developed markets.


European & Central Asian Frontier Stock Market Correlations

Frontier markets in Europe exhibited similar levels of correlation to developed US and European indices, and there was a wide range of realized correlations throughout the region. Romania and Kazakhstan had correlations above 0.60, similar to other developed markets from our first table. On the other end were Slovakia, Macedonia, and Mongolia, with near zero correlations to the broader market.


Middle Eastern Frontier Stock Market Correlations

More developed markets such as Kuwait, Qatar, and Saudi Arabia were much more correlated to developed markets than the rest of the region, with correlations of above 0.45. However, smaller frontier countries such as Iraq, Palestine, and Tunisia all had slightly negative correlations to developed markets!


Asian Frontier Stock Market Correlations

Asian correlations were quite varied. After several bad years despite the rest of the world’s stock markets rallying, China bucked the trend of more developed and populous countries having higher correlation to developed markets. On the other hand, countries such as India, the Philippines, and Vietnam all had correlations above 0.40. However, less developed countries such as Bangladesh and Cambodia both had near zero correlations to the broader market.



Frontier stock markets around the world remain uncorrelated to major markets in comparison to their emerging market brethren. While more developed countries are generally more correlated than less developed countries, this is not a hard and fast rule as seen in China. However, there continue to be many areas where investors can allocate funds to truly diversify their portfolios, and we will continue to monitor them going forward.


Leave a Reply