“If you remember China 20 years ago, you get a sense of the potential for frontier markets today.”

These were the words of Larry Speidell, reflecting on his first investment research trip to China back in 1987. Twenty years later, investors vie to leverage the strength of the Chinese economy. Speidell, chief investment officer of Frontier Market Asset Management, isn’t fazed when colleagues question why he is investing in frontier market stocks.

Frontier markets are any markets not included in the MSCI Emerging Markets Index, said Speidell. MSCI has its own Frontier Markets Index which includes seven countries in Europe (Bulgaria, Croatia, Estonia, Kazakhstan, Romania, Slovenia, Ukraine), four in Africa (Kenya, Mauritius, Nigeria, Tunisia), six in the Middle East (Bahrain, Kuwait, Lebanon, Oman, Qatar, United Arab Emirates) and two in Asia (Sri Lanka, Vietnam). Speidell uses a broader frontier market universe for the long-only limited partnership he manages, which also includes constituents from the S&P/IFC Frontier Composite, adding countries that MSCI has excluded in Latin America (Ecuador, Jamaica, Panama, Trinidad & Tobago), Africa (Botswana, Cote d’Ivoire, Ghana, Namibia), Asia (Bangladesh, Cambodia), and Europe (Georgia, Latvia, Lithuania, Slovak Republic).

It’s one thing for adventurous institutions to take the plunge. But it’s quite another for high net worth investors to jump into one of the few mutual fund or ETF products that incorporate frontier markets.

Frontier markets: economic growth and—believe it or not—less risk

History. Globalization. Risk. Optimism. These are the reasons Speidell invests in frontier markets. Financial advisors will be compelled by the prospects for strong returns and reduced portfolio risk that comes from understanding these four factors.

History matters, according to Speidell, because the history of traditional emerging market countries has laid a path for the frontier markets to follow, toward freer economies, greater wealth, and strong stock market performance. Returns for frontier markets have been respectable (see the graph below), but they could really take off if they follow the pattern set by emerging markets in the 21st century.

Source: Frontier Market Asset Management

Display article as PDF for printing.

Would you like to send this article to a friend?