Frontier Markets No Riskier than Emerging Markets


Some of the world’s most rapidly expanding economies fall into what is popularly referred to as the Frontier markets. These are markets that considered being at a less advanced stage of economic and financial development than Emerging Markets. Robust and rapid growth translates into higher earnings and valuations for companies making them attractive for investors. There is a good case to be argued for the Middle East, and particularly the GCC, to be considered a separate asset class by international investors searching for non-correlated assets to the rest of the world. A perception has existed for a while that so called Frontier Markets (as Dubai Financial Market) pose a higher degree of risk to investors, than investing in Emerging Markets.

The latest publication from the Research Foundation of CFA Institute, Frontier Market Equity Investing: Finding the Winners of the Future, argues that the risk of investing in frontier markets is no greater than the risk in many markets that are considered to be emerging. According to the publication, valuations are more attractive and, therefore, opportunity for future returns is greater in frontier markets.

This latest publication from the Research Foundation can be viewed as a call to action for investors to not underestimate the potential of frontier markets. Many frontier countries have undergone a radical restructuring of their economies since the early 1990s, and, from an economic standpoint, frontier market countries are emerging rather than stagnating. Frontier markets can provide investors with a wealth of opportunities to identify stocks that have been ignored by the mainstream investment community.

“This latest Research Foundation book touches on the many investment opportunities that exist in frontier countries,” says Lawrence Speidell, CFA, author of the publication. “Included in the book are reviews of the stock markets, the listed companies, the potential returns, and the diversification benefits, as well as economic and political fundamentals. I hope that this effort provides support for those who are currently investing in these markets and encouragement for those who are contemplating doing so.”

“Looking ahead, these markets may represent the final frontier for global capital,” states Bud Haslett, CFA, executive director of the Research Foundation and head of Risk Management & Derivatives. “As the emerging markets of today move on to become part of the developed world, the stage is set to bring along a new set of emerging candidates from the frontier markets.”

The Research Foundation of CFA Institute publishes books on a variety of timely subjects each year, which emphasize the research of practical value to the investment professional and provide a unique perspective on the rapidly evolving profession of investment management.[mpoverlay][/mpoverlay]


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