Investing in Frontier Markets Opportunity, Risk and Role in an Investment Portfolio

This book makes a compelling case that, just as today's well-rounded portfolio includes emerging market funds, tomorrow's well-rounded portfolio will include frontier market funds. More importantly, it alerts you to the vast opportunities and potential pitfalls of investing in frontier markets while providing expert advice and guidance on how to research and invest in the most promising frontier growth markets. Widely considered to be the next emerging markets, frontier markets, such as those of certain sub-Saharan African, Eastern European, Asian, and Central and South American countries, are showing strong signs of reaching economic critical mass. If you are an investor on the lookout for authoritative, actionable information on the next big investment opportunity, this book is for you.

• Provides sector-by-sector analyses that let you assess opportunities and risks in each frontier market
• Provides strategies and tools for determining the most efficient methods for executing, monitoring, and exiting investments
• Guides you through the wide diversity within frontier markets, showing how to differentiate countries on the basis of economic development and wealth distribution and other factors

Foreword xi

CHAPTER 1 Introducing Emerging and Frontier Markets 1

Emerging Markets 2

Frontier Markets 11

CHAPTER 2 Frontier Markets by Region 19

Measures Used in this Chapter 21

Asia 24

Africa 34

Eastern Europe 42

Latin America 49

Middle East and North Africa (MENA) 56

Exotic Frontier Markets 61

CHAPTER 3 Volatility: Not the Same as Risk 71

Lessening Volatility in Emerging and Frontier Markets 72

Correlations to Other Markets (and Lack Thereof) 73

Structural Reasons for Higher Volatility 74

CHAPTER 4 Solid Investment Information vs. Media Images 79

The Middle East: Not All in Conflict 81

Vietnam: A Long-term Bet 87

Kenya: A Slow Reduction in Risk 90

Kazakhstan: Borat Painted the Wrong Picture 93

Bangladesh: Not a Basket Case 96

Serbia: A Promising Candidate 100

Sierra Leone: No Longer War Torn 103

Conclusion 105

CHAPTER 5 Economic Strengths of Emerging and Frontier Markets 107

Returns from Emerging Markets 107

The Lack of Correlation between GDP Growth and Equity Returns 109

CHAPTER 6 Past Emerging Market Upheavals and What They Can Teach Frontier Market Investors 115

Argentinean Default of 2001 116

Mexican Devaluation of 1995 118

Asian Meltdown of 1997–98 122

Russian Debt Default of 1998 125

Brazilian Devaluation of 1999 128

The Place of Fixed Income in the Emerging and Frontier Equation 130

CHAPTER 7 The Global Investment Landscape: Why Developed Markets Appear Unattractive at Present 137

Canada 140

The United States 143

Europe 147

CHAPTER 8 Online Trading in Emerging and Frontier Markets and Why It’s a Bad Idea 153

The Dangerous Appeal of Going It Alone 153

The Risks of Online Trading 155

Professional Advisors and Online Trading 160

CHAPTER 9 The Changing Role of Financial Advisors 163

Responding to Increased Challenges after the Financial Crisis of 2008–09 163

Accepting Volatility 165

Coping with Increased Reliance on Financial Advisors 167

Convincing Hesitant Clients 172

CHAPTER 10 Different Ways to Invest in Frontier Markets: ETFs, ADRs, Local Stocks and Closed-end Mutual Funds 179

Exchange-traded Funds 180

Regional Funds 184

Sector Funds 187

Single-country Funds 188

Multinational Companies with Large Emerging Market Exposure 189

Frontier Market American Depository Receipts 214

Global Frontier Funds 216

Conclusion 227

Appendix: Frontier Market Open-end Funds as of May 2013 231

Global Frontier Funds 231

Emerging European Ex-Russia Funds 232

African Funds 232

Middle East and North Africa (MENA) Funds 233

Index 235

GAVIN GRAHAM is founder and President of Graham Investment Strategy Ltd. His investment experience spans thirty years and three continents, beginning in London in 1979 with Baring Brothers & Co. Ltd and including eight years in Hong Kong, three years in San Francisco managing Asian funds, and the last decade in Toronto. Formerly, he was chief investment officer for several mutual fund companies and director of investments for Bank of Montreal Asset Management (BMOAM), where he was responsible for supervising over $50 billion in assets under management (AUM).

AL EMID has forty-plus years' experience as a journalist, and this is his third book. He has reported on financial issues on the United States, Canada, South America, and the Middle East and has coordinated correspondents from all of these locales.