Investment Opportunities In Global Frontier Markets Part I

By M. Isi Eromosele

Frontier markets and the mutual funds and ETFs that invest in them are quickly becoming a separate and distinct asset class from emerging markets. Frontier markets describe the less developed, less liquid countries that make up emerging markets. Examples of frontier markets include Bulgaria, Croatia, Kazakhstan, Nigeria, Sri Lanka and Vietnam. They have now become a hot investment item.

Standard and Poors introduced its Select Frontier Index, which tracks 30 companies in October of 2007. The Index is presently updated monthly with fast track plans to start doing so on daily basis very soon. S & P also offers the IFC Global Frontier Markets, which tracks 270 companies. Year to date, this index is up 28 percent; last year, it was up 36 percent.

MSCI Barra has also launched a frontier markets index called the MSCI Frontier Markets Indices. The MSCI Frontier Markets Indices cover 26 markets, tracking performance of a variety of equity markets, representing a wide scope of investment opportunities to investors. Countries covered within this index include Argentina, Trinidad and Tobago in the Americas; Bulgaria, Croatia and Kazakhstan in Central and Eastern Europe; Nigeria, Kenya and Tunisia in Africa; Jordan, Lebanon and United Arab Emirates in the Middle East; Pakistan, Sri Lanka and Vietnam in Asia.

Changing global realities have engendered a transition that has resulted in these frontier markets, formerly discounted as too risky, now being viewed as hot investment opportunities.

It is notable that large investment companies have rolled out mutual funds and exchange-traded funds that put all or at least a big slice of their money in frontier countries. T. Rowe Price Africa and Middle East Fund is a good example of this new trend. As of the end of April, 2010, the company had invested about 75 percent of its $207 million in countries including Nigeria, Kenya and Qatar. For the 12 months through June, it returned 17 percent.Claymore Securities and Invesco PowerShares, two other leading providers of exchange traded funds, have also introduced frontier index products.

The profit advantages of investing in frontier markets is being crystallized as a result of the economic and fiscal difficulties being experienced within the American and European economies, where interest rates are drooping. Additionally, recent returns from investing in stock markets in leading emerging nations such as Brazil, Russia, India and China have been disappointing.

Frontier markets did not participate in the huge global run-up of 2009 as emerging markets did and as such were not overly affected by the resulting financial crisis. The positive is that these markets are pleasingly valued in comparison with emerging markets.

As with any other investment vehicles, there are risks associated with investing in frontier markets. Political instability in emerging countries is one of them. In the smaller frontier markets, liquidity is also a risk. The regulatory scheme within these countries varies and often provides far less oversight than in more developed countries. On a more positive note, frontier markets are less influenced by global conditions such as the current European budgetary crisis. Regardless, the rewards outweigh the risks.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

http://twitter.com/osemegroup | http://twitter.com/oseme22

Copyright Control © 2010 Oseme Group