As investors around the world look to rebalance their portfolios for 2021 and beyond, many traders will remain solely focused on U.S. equities. However, based on the charts discussed below, recent price action near influential trendlines suggests that now could be an ideal time to look beyond domestic borders and focus on frontier markets. More specifically, small, less advanced capital markets such as Vietnam and Nigeria show great promise for future growth.
- Frontier markets represent small nation economies around the world that are often overlooked in favor of the more developed or emerging counterparts.
- Nearby support levels are suggesting that this overlooked group of economies could offer lucrative investment opportunities in 2021 for those willing to assume the risk.
- Charts of Vietnam and Nigeria exchange-traded funds (ETF) are examples that appear to be well positioned for a move higher over the weeks and months ahead.
iShares MSCI Frontier 100 ETF (FM)
Active traders who want to gain exposure to the largest stocks from frontier markets such as Kuwait, Vietnam, Morocco, and Nigeria may want to consider ETFs such as the iShares MSCI Frontier 100 ETF (FM). Looking at the chart below, you can see that the price of the fund has been trading within a defined range since recovering from the selloff in March.
The ascending channel pattern has provided strong guides for traders looking to determine the placement of buy and stop orders. Based on this pattern, we would expect active traders to maintain a bullish outlook on frontier markets until the price of the fund closes below the lower trendline or the 200-day moving average, depending on risk tolerance and outlook.
VanEck Vectors Vietnam ETF (VNM)
Companies from Vietnam represent 14.22% of the MSCI Frontier 100 ETF portfolio. Looking at the chart of the VanEck Vectors Vietnam ETF (VNM) below, you can see that the price of the fund has moved above the resistance of its 200-day moving average and has broken beyond the upper bound of a defined channel pattern.
Traders will likely use the recent breakout as a leading indicator of a move higher and will likely watch for a similar breakout on the chart of FM over the coming weeks. From a risk-management perspective, stop-loss orders will likely be placed below $15 or $13.91, depending on risk tolerance and outlook.
Investors pursue frontier, or pre-emerging, equity markets to seek potentially high returns. Some of the risks investors face in frontier markets are political instability, poor liquidity, inadequate regulation, substandard financial reporting, and large currency fluctuations. In addition, many markets are overly dependent on volatile commodities.
Global X MSCI Nigeria ETF (NGE)
Another frontier market that will likely capture the attention of traders over the weeks ahead is Nigeria, which is the home country of 9.16% of the FM ETF holdings. Looking at the chart of the Global X MSCI Nigeria ETF (NGE) below, you can see that the price has been trading within a sideways trend since the March lows.
However, rising prices since early October have pushed the price beyond the resistance of the 200-day moving average and triggered a bullish crossover between the 50-day and 200-day moving average. The popular long-term buy signal will likely be used by active traders to mark the beginning of a major uptrend.
The Bottom Line
Frontier markets represent a small fraction of the global GDP, but they also represent some of the fastest growing economies in the world. For active traders willing to broaden the scope of their portfolios, looking to countries such as Vietnam and Nigeria could offer an untapped investment opportunity.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.