The Most-Promising Emerging and Frontier Markets, Ranked

Bloomberg has an interesting article on the most-promising emerging and frontier markets with two tables of the ranking. It’s not the ranking that interest me but the tables which I posted below. The rankings are based on a bunch of indicators, so it’s very subjective and what they think and what will happen are two different things.

The tables are interesting because it provides a bunch of useful info in an organized manner. It provides a country estimated 2015 GDP growth with price to book ratio of the main equity index. South Korea, the #1 ranked country, trade at 1x book value.  A low book value ratio is a good place to start looking but you need to do your homework to make sure it’s not a value trap. For example, Ukraine trades at .50x book value, you can make the argument that it’s warranted. The point is that you don’t buy a stock or country index just on one valuation metric. If it was that easy everybody would be rich.

The table also provides the two-year sovereign credit default swap (CDS) spread, a measure of risk interpreted in basis points. So 50 basis point is 0.50% and 100 basis point is a full percent. It gets a little more complex than that but to summarize they are like an insurance policy against debt default. For example, a country with a perceive high risk of default, such as Russia or Greece, will have a higher CDS spread. That means it’s more expensive to insure against against debt default. If a country is believed to respect its debt obligation like South Korea, the CDS spread is low. In the event of default the buyer of the CDS receives compensation.

Lowest price to book value:

  1. Cyprus: 0.1x
  2. Chile: 0.3x
  3. Panama: 0.4x
  4. Latvia: 0.5x
  5. Ukraine: 0.5x
  6. Kazakhstan: 0.6x
  7. Bulgaria: 0.6x
  8. Russia: 0.7x
  9. Greece: 0.7x
  10. Hungary: 0.8x
  11. Croatia: 0.8x

As you can see from the countries above, it’s not certainly not the Pax-Romana of investing land. I raised an eyebrow when I saw Venezuela trading at a very high 4.5x book value, the most expensive on both lists. The country is in a recession and about to default, you can see that is reflected it’s CDS spread of 6420 basis points (64.2%!). I didn’t look into why the stocks are so high and it might be the topic of another post. So I won’t speculate for now.

Most promising emerging markets

Most promising frontier markets


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