Anyone wishing to invest for their pension, QROPS or SIPP wants to have some basic information regarding investment regions, and frontier markets is one worth thinking about.
Let’s go back in time 3 years, in mid-2008 the Russian market was tanking. By October 2008 the key RTS index had lost 80% of its’ value. It looked like the Eastern Bloc emerging market party was totally over.
Well, not quite. From that October, I was telling investors that at 80% down, this was a superb purchasing opportunity.
Russia’s oil, gas and other resources hadn’t abruptly disappeared, nor had the currency been destroyed or the country defaulted on its obligations. At 80% down, all it would need was a move back from 20% to 40% of its previous worth for a speculator to double their cash.
It looked a no-brainer to me, and during that period I was shown to be correct, and then some.
The reason I share this is not to blow my personal trumpet, but to prove that, spotting a trend early based totally on a thorough knowledge of underlying basics is extremely fruitfull.
With this noted, let us take a look at funds targeted on what the community terms Frontier Markets, It might sound a bit Wild West, but in fact these funds are basically invested in a sub-set of the broader Emerging Market countries that I so forcibly believe in for future and sustainable expansion. The traditional Frontier Market is an open and rising economy, graced with superb demographics and regularly natural resource wealth, yet too little and illiquid to be categorised in the bigger and safer sounding, emerging Market club.
Natural resource wealth has helped Africa weather the global recession exceptionally well, and the continent generated positive GDP expansion last year. Just a decade ago, China and India were seen as exotic, even idiotic investments. Now they are necessary parts of many an established portfolio.
By this categorisation, European Union member state Estonia is a Frontier Market, as is its fellow European Union member Bulgaria.
This also includes the natural resource rich Kazakhstan, the oil countries of Nigeria, Kuwait and Qatar, the following Asian tiger, Vietnam, and the sleeping giant of Latin America, Argentina.
In 2009, as the global monetary crisis bit, these frontier markets slid further than their more established emerging market cousins, owing to a combination of low liquidity, political risk and bigger susceptibility to external macroeconomic shocks.
However of the above, the Black Sea area is of specific interest, with Kazakhstan looking a future star, with its big resources – oil, gas, minerals and metals and it’s extremely low relative valuations.
Africa is also looking increasingly interesting to long-term backers seeking bargains. With anything from diamonds to oil, copper to coal, folk and land, Africa’s enormous natural resource wealth has helped the continent weather the global recession surprisingly well so far.
I’ll continue this subject in the subsequent article.
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