Frontier Markets Equity Investing
Frontier markets present unique challenges and rewards. They are inherently and attractively inefficient, brimming with opportunities for discerning investors to own stakes in high quality companies at relatively low share prices. They are also rife with potential pitfalls for less discriminating and passive investors. In frontier markets there is no substitute for proprietary research, analysis, and on-site exposure to the intricacies of the enterprises, their markets, and the social, financial, regulatory and government structures in which they operate.
The case for equity investing in frontier markets draws from multiple factors: strong historical precedent, the power of economic globalization, the compelling diversification benefits demonstrated by frontier investments, and the unbridled optimism and entrepreneurial spirit of the people who live and work in these countries.
Why invest in frontier markets? Here are just a few reasons:
1. Frontier Markets are young.
The demographics of frontier markets point to potential for productivity growth and expanding consumer classes.
2. Frontier Markets act differently.
Stock market return patterns in frontier markets don’t parallel those of the rest of the world. In addition, because they move independently of one another, the overall volatility of diversified frontier portfolios tends to be low. This provides excellent diversification opportunities for any portfolio.
3. Economic development has proven a powerful return engine.
The ability of economic development to generate investment return has proven beneficial in the world’s emerging markets. Frontier markets are treading this same path.
4. Life is getting better faster for people in frontier markets and this
positive change is fueling optimism.
People in frontier markets have little doubt that their quality of life will improve and they are motivated to work hard to augment positive change.
5. A flatter, shrinking world is rapidly delivering benefits and
opportunities to frontier markets.
Many business owners, workers, and consumers in frontier markets will never know a landline phone or compact disk. Leapfrogging technology is streaming incredible depth of information and power to the shirt pockets and fingertips of emerging entrepreneurs on the frontier.
6. Frontier markets are beautifully inefficient.
For all the modernity arriving on the frontier, investment information is still retrieved and evaluated through human sources, site visits, and traditional analysis. This means there is significant potential for security mispricing and hidden value for investors who enlist the resources of a focused and experienced professional team.