Will frontier market equities continue to underperform?

The sharp drop in oil prices has played a major role in the recent poor performance of the MSCI Frontier Markets (FM) Index, in which a small number of oil exporting countries have large weightings. Indeed, the index is on course to underperform the MSCI Emerging Markets (EM) Index in Q4 for the first time since 2012. Given that we expect oil prices to remain low, we think the FM index is unlikely to outperform its EM counterpart significantly anytime soon. Nonetheless, we think the outlook for the equity markets in a number of smaller countries included in the FM index is relatively bright.