Merrill Lynch & Co. Inc. announced that it has launched a frontier equity market index that is aimed at capitalizing on investor interest in investing in markets with developing economies but underdeveloped equity markets.
The Merrill Lynch Frontier Index, which the New York company introduced Wednesday, tracks 50 stocks from 17 countries in Europe, the Middle East, Africa, and Asia.
Merrill said that the stocks listed in the Middle East make up 50% of the index; Asia, 22.6%; Europe, 14.1%; and Africa, 13.3%.
Observers said that they expect an exchange-traded fund to be introduced that would be linked to the index.
The index is weighted heavily with banks, at 39.4%; financial services companies, 25.7%; and oil and gas companies, 13.6%.
The top three countries represented are the United Arab Emirates, Kuwait, and Pakistan.
Merrill said in a press release that the so-called frontier markets globally feature undercapitalization; weaker regulatory frameworks; and low levels of foreign ownership, borrowing, and transparency.
To qualify for the index, a stock must have a market capitalization of at least $500 million, a three-month average daily turnover of at least $750,000, and a foreign ownership limit above 15%, Merrill said.
The composition of the index is to be reviewed twice a year, in February and August. It will be calculated daily on both a price and total return basis.
