New study for investors on frontier markets launched

Frontier markets including Nigeria, Tunisia, Kazakhstan and Mongolia have the potential to deliver annual growth of 11%, according to asset managers.

A frontier market study to help investors navigate the sector from Swiss & Global Asset Management is predicting that frontier markets could see annual growth of 11% over the next ten years, fuelled by relatively low stock market penetration compared to overall GDP, strong demographic profiles and economic prospects.

Investors are starting to pay close attention to frontier markets, which have seen fund flows of $2.9 billion since the start of 2010, according to EPFR Global, yet there remain concerns over the local conditions from an economic, political or social perspective.

Swiss & Global AM’s study is intended to help investors gain a thorough understanding of these markets, which it believes should form a 5 to 10% allocation of investor portfolios.

The study aims to dispel some of the myths surrounding the frontier universe and to highlight attractive investment ideas which may have fallen under investors’ radar, for example Nigeria’s consumer story.

‘Frontier markets offer investors the chance to enter a market at the beginning of its growth story and the potential for superior investment returns. The gap between emerging and developed markets is narrowing and frontier markets appeal to investors who are looking for the next undiscovered gem. These markets tend to have lower correlation to global stock markets and have been relatively insulated from problems in the global economy,’ said Andrzej Blachut, head of Emerging Market Equities, Swiss and & Global AM.

‘In order to manage risk and avoid sector biases we believe it is imperative to adopt a truly active investment approach, which is adapted to suit the characteristics of individual countries. It is important to select a fund manager with in-depth, specialist knowledge of frontier markets who can leverage this know-how and their local relationships to build a well diversified portfolio of stock picking ideas,’ he explained.

‘There are a number of exciting companies within frontier markets, many of which have global competitive advantages such as low cost bases, easy access to commodities and geographic proximity to major markets. These companies should prosper even in turbulent markets, gaining market share and delivering higher margins,’ he added.

The study includes chapters on what defines a frontier market, the investment case, expected returns, highlighted regions, potential risks and ways to access these markets.