April 22, 2012
BY: Robert Hallberg, Topics: Frontier Markets
The west has been in stagnation since the crash of 2008 and most of the growth in recent years has come from emerging economies such as China, Brazil, and India, among others. But these economies have been saturated with investors by now and they no longer have the bargain deals that once made them so attractive.
Although most traditional emerging markets do not have the same investment potential they once had â new opportunities can be found in frontier markets. Some of these new opportunities are coming from places that until very recently were closed off to the rest of the world.
Frontier markets are typically defined as less developed than emerging Markets but different from the so called âfailed statesâ. Most of these places have not yet been saturated with foreign investors and they offer retail investor the advantage of coming in early. They are considered risky but they also offer tremendous investment opportunities. Besides, just as little as 10 years ago investing in places such as China, India, and Brazil, was considered highly risky, yet today they account for a large percentage of most funds.
Many frontier markets like Mongolia, Nigeria, Cambodia, and Vietnam are at the same stage of development that emerging markets like China, Brazil, India, and Russia was at a decade ago. They are all starting from a very low base with people only earning a couple of dollar per day. Growing from this level does not require much positive change and a little bit of foreign capital will go along way of boosting GDP.
Many of these countries have vast untapped natural resources. Mongolia for example sits on a trillion dollars worth of mineral reserves while Nigeria has huge oil resources. Many foreign conglomerates have already entered these countries and the capital these companies bring will raise the standard of living across the board.
These markets need everything thinkable from infrastructure, to consumer goods, telecommunication networks, and housing. There are almost limitless opportunities for entrepreneurs willing to take some risk and start something new.
The chart below shows the best performing stock markets in the world and many of the frontier markets are at the top.
The next chart shows the GDP growth of each country. Qatar is leading the charge with 35% annual GDP growth but Mongolia not too far behind.
There are a number of ways to invest in these markets. They all require some due diligence but the rewards can be plentiful. Harris Kupperman who I interviewed earlier this month has a promising fund focusing on real estate and insurance in Mongolia. Leopard Capital is another firm, run by Douglas Clayton that is investing in frontier markets.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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