One of the world’s riskiest investments may be getting ready for some relief rallies.
Frontier markets, also known as pre-emerging markets, have seen significant pain in the past year. But according to some traders, the recent surge in oil may become a boon for those looking for a bounce in these exotic equity investments.
Crude rallied 8 percent Wednesday, even as oil inventories climbed to record highs. Technician Craig Johnson of Piper Jaffray said renewed strength in oil could drive the frontier markets ETF (FM) higher, in what he sees as “more of a trade than a longer-term investment.”
“This index is still making a series of lower lows and lower highs, but it’s going to be very correlated to what we see happening to the overall price of oil. To us it looks like there’s a bit of a relief rally opportunity in oil,” he said Wednesday on CNBC’s “Trading Nation.”
Because frontier markets are less established than emerging and developed markets, they usually come with higher risk and returns. The frontier markets ETF has fallen 24 percent in the past year.
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Within the ETF, the largest holdings include assets from countries such as Kuwait, Argentina and Nigeria.
Neil Azous of Rareview Macro said that low oil prices have created a buying opportunity within frontier markets. Over a long-term period, select markets within this group may provide healthy returns, he said.
“There’s probably some type of sliver of allocation that makes sense for different investors, and you should seek out a specialist for that particular segment of the market,” Azous said Wednesday on “Trading Nation.” “If you have a six to 10 year time horizon, some of these frontier markets can be really wonderful opportunities.”
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