The case for frontier markets is becoming increasingly attractive, both for an investment today and also over the longer term.
These markets provide access to some of the most dynamic and fastest-growing economies in the world, supported by strong secular growth drivers. The investment opportunities are similarly benign as market liberalisation is accelerating and valuations look attractive in absolute terms and versus the developed and emerging world.
Moreover, in a global macro environment dominated by uncertainties, frontier markets' relatively low correlation with developed (and emerging) markets offers investors significant potential diversification benefits.
What are frontier markets?
The definition of a frontier market is somewhat judgemental, but typically include a low/middle income country and a relatively under-developed capital market compared to more developed global emerging markets (GEMs) peers.
Frontier markets comprise 26 markets spanning Asia, Eastern Europe, Africa, Latin America and the Middle East.
The universe can be broadly divided by the principal growth drivers for each economy.
There is no overlap between the MSCI Emerging Markets and MSCI Frontier Markets indices although, as nations develop, markets can be promoted from frontiers to emerging markets and vice versa.
Why invest in frontier markets?
Frontier economies are at the early stage of development and are expected to grow faster than emerging and developed economies resulting from a number of secular growth drivers.
Given the poor fundamentals in the developed world, the emerging and frontier countries are in fact less risky.
Frontier markets offer attractive investment opportunities; undeveloped relative to their economies and offer potential significant diversification benefits and attractive valuations.
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