1. MSCI Frontier Markets 100 Index 2. As at 31 April 2021. Source: MSCI
Frontier markets offer an additional opportunity set for investors, particularly within fixed income, but for many investors, they remain relatively unexplored. Many traditional emerging market countries are now much more developed than they used to be, with more stable institutions and infrastructure. As such, it will be difficult for these countries to grow at the same rate as they did in previous decades. Within equities, many may consider the frontier markets index1 to consist of a large number of small countries. In fact, it is very concentrated by country, with the MSCI Kuwait, Vietnam and Morocco comprising approximately half the index2. However, frontier markets are generally under-owned and under-researched, which could create opportunities to generate alpha.
An alternative approach to capture opportunities arising from frontier markets is by investing beyond the traditional boundaries of geographical domicile, focusing instead on successful companies that are taking advantage of key secular trends in developing countries.
All in all, multiple secular growth trends underpin the promising outlook for emerging markets. As the focus of growth shifts towards emerging markets, we believe that an on-the-ground presence in these regions and fundamental research are key to identifying important trends, finding companies with robust networks and supply chains, while being sensitive to unique intricacies and constraints in these regions. This should ultimately help generate strong long-term investment results.
View full report here
