Investing in Frontier Markets: Opportunity, Risk and Role in an Investment Portfolio

CHAPTER 7

The Global Investment Landscape: Why Developed Markets Appear Unattractive at Present

Dealing effectively with the global investment landscape means viewing the investment dynamics of different areas and connecting the global dots between them. Truly understanding any complex investment premise—or for that matter any complex premise in any discipline—means looking at factors in the proverbial “big picture” in order to better grasp the fundamentals of the premise. The concepts involved in understanding emerging markets, while complex, have become at least somewhat familiar to many investors while the concepts involved in frontier markets remain truly puzzling to many financial professionals and to most investors. Achieving some understanding means starting with a global perspective.

One central thesis of this book is that frontier markets are at a stage of development that is equivalent to that of the “established” emerging markets of Southeast Asia, Russia and Latin America 15 to 20 years ago, with GDPs per capita that are at the same level as those of the emerging markets at that time and with the potential to follow the same path of development and growth that the emerging markets did over the last 15 years. While there is no guarantee that their stock markets will perform as well as the emerging markets have done over the last 15 years since the Asian and Russian crises of 1998, their relatively low valuations should give investors confidence that the absolute returns ...