Only six markets worldwide are trading above their 2007 highs, and all of them can be classified as “frontier,” per a recent piece from the Wall Street Journal:

Tunisia, the tiny African nation south of Italy, has been the best performing stock market since 2007. The Tunindex, a 12-year-old index of 45 stocks, is trading 81% above its high for that year, and is up 15% for 2010. Sri Lanka is up 53% since 2007 and 36% this year.  The other four comprise Venezuela, Colombia and Chile— Latin American countries benefiting from a rush to commodity-rich emerging markets—and Indonesia.

The tally of performances demonstrates just how much investors have been favoring emerging markets, and the extent to which they have been willing to delve into frontier markets.

Emerging market mutual and hedge funds saw inflows of $17.3 billion in the first half of 2010, while frontier markets saw $780 million incoming.  Fund managers, the theory goes, are increasingly turning their attention to such markets if for no other reason that growth rates there are expected to vastly outperform those in developed countries.

The true test, of course, will be the viability of any long-term paradigm shift.  Are money managers merely opportunistically seeking short term alpha, or are these shifts the beginning stages of a more concerted, long-term effort at mirroring what many observers predict will be a fundamental change and rebalancing in global finance whereby the relative fiscal strength of developing markets is reflected in higher exchange rates and greater consumption and foreign investment, fueling in turn a virtuous cycle and greater liquidity in their risky assets?

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