There’s another place to invest: the frontier.
Frontier markets are emerging markets that are “out there.” They’re developing markets that are smaller, less liquid, less regulated, and more volatile than the BRICS. They include places like Bangladesh, Kenya, and Romania.
Emerging markets like Brazil or China were once considered exotic, but now they’re home to some of the largest companies in the world. Their economies are large and diverse, and their politics have matured. Twenty years ago they were exotic. Now they are an increasingly mainstream investment.
But the frontier subset is still on the fringe. They’re subject to military coups and regional wars; corruption and insider dealing can be an issue; and their markets are extremely small: often only a handful of companies are available in any one country.
So why invest there? Because they offer significant growth, an expanding middle class, and extremely low valuations. They’re also less correlated with the US. So a small slice can improve a portfolio’s return without significantly increasing its risk.
But they’re not for everyone. Wars, trade wars, and contagion are not uncommon. For long-term, growth-oriented investors with steely nerves, however, these high-risk markets could be highly rewarding.
Douglas R. Tengdin, CFA
Chief Investment Officer
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