Pakistan’s Upgrade Rocketed Stocks Over 50%, Which Three Countries Are Next?

Vietnam, Argentina & Romania to Follow Pakistan’s Lead

Pakistan (PAK) is expected to be reclassified from the frontier markets to emerging markets status in May by MSCI the world’s (ACWI) leading provider of research-based indexes. The upgrade is already leading to its stock market rocketing over 50% to historical highs.

Following Pakistan’s lead, we have three more frontier markets, which are currently attempting to qualify for a similar reclassification; Vietnam (VNM), Argentina (ARGT), and Romania.

5 of top 10 frontier market index stocks are either Vietnamese or Argentinean

Top 10 holdings of the MSCI Frontier markets index consist of 1 Vietnamese stock, and 4 Argentinean stocks.  The table below provides details of these holdings.

Currently, Vietnam commands a 7.61% weight, while Argentina commands a good 16.14% of the MSCI Frontier Markets’ portfolio.

Argentina leading performance, followed by Vietnam

Let’s quickly take a brief look at how these markets compare against each other and vis-à-vis the broad emerging (EEM) (VWO) and frontier (FRN) (FM) markets before we look closely at each economy’s prospects with the upgrade separately.

From a performance perspective, between these markets, Argentina has been leading performance over the past 1 year (since Feb 15, 2016) with a 70.3% return, followed by Vietnam at 29.8% return, and Romania at 24.5% return. Broadly, emerging markets have delivered a 28.7% return over this period, while frontier markets have bagged an 11.5% return.

In the subsequent parts of this series, we will look at current and forward valuations, macroeconomic drivers that may be boosting or dragging performance for each of these markets, currently, and their economic viability to graduate to the emerging market basket from their current frontier market status.