Frontier markets are those economies which are currently at a very low level of development, but which have shown substantial political will to begin developing their populations at the maximum rate possible. These are the countries which have the potential to be the China’s of tomorrow with decades of rapid growth and development in front of them.
The potential for rapid and sustained catch-up growth makes frontier economies a very attractive long-term investment opportunity. In addition, investing in frontier economies is also an ethical investment because such investments can help to lift millions of people out of poverty. Like the green economy, investment in frontier markets therefore promise the rare combination of large long-term returns and a very meaningful contribution to society.
Unfortunately, investing in Frontier markets can be difficult, expensive and risky. The difficulty and high cost arise from the small size of this market sector and the fact that financial systems in frontier markets are often not yet well established, while the risk arises from political and social unpredictability. These factors should be well considered before any action is taken.
Once again, non-professional investors should stick to investing in professionally managed funds, but the problem is that such funds are few and far between and can be difficult to find. However, just like it is with the green economy, investment firms are waking up to the demand for private frontier market investment vehicles and some funds are emerging. Examples are the frontier market funds from HSBC, Franklin Templeton and Wasatch. For investors with a high net worth, Leopard Capital can be a good option as well.
Finally it should be acknowledged that frontier markets are somewhat out of the ordinary and one should definitely not have too much exposure to them, but a small holding has the potential for excellent and ethically sound long-term returns. Keep your eyes open as more such funds become available as time passes and give some serious thought to investing a little of your savings in the futures of some of the world’s poorest citizens.