The next big thing in emerging markets

14th September 2010

With their well-run economies, low debt and predictable growth, some emerging markets can seem a bit, well, safe these days.

Having shaken off their reputation for political instability and economic mismanagement, emerging markets may not feel very ‘emerging' any more.

Investment funds are looking to diversify, and the race is on to find the next round of contenders to the current BRIC winners. But as FT.com's blog beyondbrics points out, it's no mean feat.

Frontier markets are becoming increasingly popular with those who feel they are not getting the spice they need in their portfolios from plain, old emerging markets.

The most recent endorsement of frontier markets has come from SBI and Invest AD who have just launched a $100 million Frontier Africa fund

Invesco's Neil Woodford has also taken a $25 million (£16 million) in Masawara, an $80 million fund set to begin trading on the AIM market this month, as reported here in Investment Week.

This may be a drop in the ocean for Woodford, who runs billions of pounds, but frontier markets are garnering greater interest from the wider investment community as well. This Business Week article shows how the sector is attracting capital from experienced investors.

A number of index providers have launched indices based on frontier markets in response to this demand, according to Market Watch.

Low volatility

Andrea Nannini, manager of the HSBC New Frontiers fund, says: "Our outlook on frontier markets remains positive, due to attractive economic fundamentals such as strong growth prospects, supportive demographics and attractive valuations.

"In addition, the frontier markets continue to lag the emerging markets in the post-crisis recovery and we expect this gap to narrow going forward.

"Furthermore, the frontier markets have been less affected by recent global instability underscoring their low correlation and low volatility compared to global markets."

His fund is overweight the MENA (Middle East North Africa) and Sub-Saharan Africa regions with his main overweight positions being Egypt, UAE and Nigeria.

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