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Frontier Market Opportunities for 2011 and Beyond (Part 2 of 2 )


After all the turmoil the global economy has been through over the last several years, the International Monetary Fund and many economically powerfully countries in the G20 group on nations realize that the global economy and financial markets can not afford ( in any sense of the word ) to have multiple countries fail economically. Businesses and industries are another matter … it’s called competition and creative destruction. Multiple failing countries cause mass chaos and fear on a global level. No one wants that. Countries across the globe are too interconnected, many times in unforeseen ways. The ripple effects would provide a lack of stability in the global financial markets and the global economy.

What I am really getting at here, is that many frontier market countries, in regards to their ( key point ! ) total diversified country equity risk are relatively low compared to emerging market countries, with only a very slight increase in risk.  ( another key point ! ) Frontier Markets may likely be somewhat more volatile than Emerging Markets, but will provide better opportunities and returns ( as a component of a diversified global equity portfolio ) in the short to medium term if investors are diversified in these Frontier Markets and are patient enough to hold these equities and withstand some inevitable volatility. Caveat … not all Frontier and Emerging markets are equal. It is important to view the risk / reward factors for each investment; taking into account projected GDP, political stability, currency issues, public debt as well as other factors.  Another positive case for investing in Frontier Markets is that they generally have had a small risk correlation with US equities in the past. Wisely investing in these equities can help diversify your equity portfolio.

If it becomes evident in the near future ( within 3 months or less ) that emerging markets are ” overheating “, I believe there will be much more foreign investment interest in these frontier market countries that are not as risky as most investors believe. It may be at 2-3 months before this trends becomes somewhat self-evident, taking into consideration the likely U.S.A. FED’s QE2 policy, the global and US business life cycle, the US midterm elections and an expected improvement in Fiscal 2010, 4th quarter for US and global equities.

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About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.

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