Emerging makets vs Frontier markets

By: ispeculatornew
Date posted: 08.19.2009 (4:00 am) | Write a Comment  (5 Comments)

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Pyramids of GizaIn 2009, the world is seen by many as smaller than ever, or “flatter than ever”. That is certainly true of finance as capital flows around the world. However, countries have very different levels of structure which can result in different degrees of complexity in their capital markets. In geographical terms, the investments are usually classified as following:
US
Japan (not always, but often separated)
Developed markets (most of Europe, Canada, Australia)
Emerging markets (BRIC’s, etc)
But an often overlooked category is the “frontier” markets. They are not as common for many reasons but will probably become more known in the coming decades. Frontier markets are generally countries that are fairly poor, including most of Africa. These countries offer limited investment opportunities and are often very illiquid investments. So why invest in such a region? Precisely for those reasons actually. Because these countries make investing considerably more of a challenge, many investors do not even consider venturing in frontier markets which creates good opportunities for investors that are looking for long term uncorrelated investments. Of course, the objective is to pick those frontier countries that will soon be known as “Emerging countries”.
In reality, there are no clear standards as to what makes a country “emerging” or “developed”. In fact, countries like Kenya or even Vietnam or often among those in the “frontier” markets group. There are of course many ways to describe what should or should not be a “frontier market” but generally, Morgan Stanley is one of the more reliable sources. They currently have 28 countries listed as frontier markets:
-Bahrein
-Botswana
-Bulgaria
-Croatia
-Estonia
-Ghana
-Jamaica
-Jordan
-Kazakhstan
-Kenya
-Kuwait
-Lebanon
-Lithuania
-Mauritus
-Nigeria
-Oman
-Pakistan
-Qatar
-Romaniaa
-Trinidad and Tobago
-Saudia Arabia
-Serbia
-Slovenia
-Sri Lanka
-Tunisia
-Ukraine
-UAE
-Vietnam
It is quite a list isn’t it? Usually, it is almost impossible for individual and even many institutional investors to make direct investments in these countries so they usually invest indirectly through funds/etf’s. That helps us avoid all the legal and technical issues in order to get direct exposure. As well, it is very difficult to invest in individual companies as the information available is usually much more difficult to obtain than from companies in developed markets. As well, the accounting and other standards could be very different which can make it difficult to compare companies.
Even now, with thousands of ETF’s available to investors, very few cover frontier markets efficiently, mainly because the costs involved are so great. Some mutual funds do offer opportunities but I would again stick to ETF’s and while I expect some more interesting ones to come along soon, here are a few that you can already look into:
VNM – Market Vectors Vietnam
AFK – Market Vectors Africa
MES – Market Vectors Gulf States
FRN – Claymore/BNY Mellon Frontier Markets
Do you know of any others?
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5 Comments

  1. […] Emerging markets are not exotic enough these days. The Intelligent Speculator reports on investment opportunities in 28 countries classified as “frontier” markets. […]

  2. […] This might be the most obvious point, but it is not as straightforward as you might think. Actually, while ETF’s do generally have very low annual fees, not all of them do. It is important to look at them when considering buying ETF’s for a long term investment. It is difficult to give a number to look for as it really depends on the type of ETF. Generally, ETF’s that invest in US equity markets should have very low fees, of .50% or so. But ETF’s that invest in emerging countries will and should have higher fees. After all, the managers will face higher trading, execution and even legal fees. That is one of the costs of business when dealing in emerging or frontier markets. […]

  3. […] have enormous potential for growth. There are currently 28 countries listed as frontier markets, reports IS for Intelligent Speculator. (Read about MSCI’s latest review of these […]

  4. Comment by Michel Tosto — September 7, 2010 @ 11:47 pm

    If you’re looking to invest directly in Vietnam, you should contact me. Free information available. We are a locally licensed securities broker in Vietnam. Regards, Michel michel.tosto (at) vcsc.com.vn

  5. Comment by IS — September 13, 2010 @ 11:37 am

    @Michel Tosto – Interesting, are you located in Saigon? Are you from there?

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