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Date: 2016-08-12

Investors Moving Money from Emerging Markets to Frontier Markets

Jeff Nemesi

Recent tremors in emerging markets have investors worried about whether or not their money is in the right place. There is a riskier alternative for investors, that being investment in frontier markets. Frontier markets are markets that are neither developed nor emerging, and with this definition, frontier markets include twenty-three of the twenty-five fastest-growing economies over the last ten years. However, most of these countries do not have stock markets nor are they listed in the MSCI frontier market index, and this is due to the countries' stocks being unable to meet size qualifications and accessibility standards.

The spreads in the emerging and frontier markets are slowly getting closer and closer, partly due to the slowdown of growth in BRIC countries. Charlie Robertson of Renaissance Capital stated, “The things that made emerging markets exciting in the 1990s are now found in frontier markets”. Investors who are making the movement to frontier markets prefer to invest in poorer countries with great potential, hoping that as the middle class grows it will open up spending on infrastructure. This is shown in countries such as Angola,where investors are taking gambles based on overall growth potential and looking at the big picture.

So what lies in the future for frontier markets and investment strategies? Greater demand for investment in frontier markets will increase the supply of stocks, and countries will likely issue more “Eurobonds” in the future. With the money being easy to acquire for these countries, will they be able to not take it for granted and be smart with their spending? Or will these countries acquire too much debt and send themselves into turmoil?


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