Frontier Markets Come Into Focus


These days, it seems that Europe and the Americas are becoming over-saturated with data, news and trades. Everyone claims to have some kind of killer trade, be it fixed income, equities or some other asset class. And for every killer trade, there is a contrarian on the loose who has equally valid data points that combat the idea of the original trade.

Thus the back and forth dynamics of investment ideas pertaining to U.S. equities and fixed income and, to a popular degree, the European debt crisis are played out. Some analysts and portfolio managers would even go so far as to argue that the ideas being thrown around in the markets are passé. They are outdated and cater more to the retail investor than the astute institutional money manager.

For those who are ahead of the curve, finding new territories and investment ideas are a must. One of the fastest areas of growth is the Middle East and Africa. While both areas obviously have emerging market risk attached to them, there’s also large upside potential when compared to first world areas like Europe and North America.

“[Consumers] see the pace of the transformation in frontier markets accelerating and note that many countries, particularly in Africa and the Middle East, are beginning to show the kind of promise that gave rise to the powerhouse emerging markets of China, Brazil and India only a couple of decades ago,” wrote asset manager T. Rowe Price in a new investment memo.

Frontier markets have become the de facto buzzword for new areas that are expected to become the next China or Brazil. India and sections of Africa, in particular, are targets for investors who are searching for a double-digit return on investment. The risk-reward principle attached to these areas is high but expected with fast moving industries combining with accelerated GDP growth. As more companies move to the regions, the burgeoning middle class will help them grow and expand further.

“In Africa already, many multinational companies are thriving and operating successful businesses that are generating strong earnings growth,” noted Chris Alderson, president of T. Rowe Price International.

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