Next Eleven economies: Bold new market frontiers

If emerging markets aren’t sufficiently action-packed for your tastes, it may be time to brave new frontiers.

A decade ago, so-called frontier markets were tipped as the successors to Brazil, Russia, India and China.

In 2005, Jim O’Neill at the investment bank Goldman Sachs, the man who coined the phrase Bric four years earlier, identified what he called the “Next Eleven” economies that were set to burst into life.

He pulled together a range of diverse countries from different parts of the world – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam – and claimed they had the potential to become among the world’s largest economies of the 21st Century.

In 2014, Mr O’Neill narrowed down his frontier market choice to the Mint – Mexico, Indonesia, Nigeria and Turkey.

The past five years have been tough on the concept, with the MSCI Frontier Markets Index returning just 0.70 per cent over the last five years, and falling a painful 13.55 per cent over the last 12 months.

Optimism is picking up again, with the MSCI Frontier Markets Index up 10 per cent over the past three months, following the revival in commodity prices and economic sentiment after January’s stock market rout.

Ghadir Abu Leil-Cooper, head of the Emea and global frontier markets equity team at fund manager Baring, says prospects are also brightening in the Mena region. “It has one of the fastest-growing populations in the world. With one in five between 15-24 years old, this is driving demand for homes, infrastructure, services, health care and education.”

She says Saudi Arabia opening its stock market to international investors next month is a positive step towards providing capital and opportunities for Saudi companies and for future economic growth.

Recent oil price swings have persuaded countries in the region to diversify away from the energy sector, she says. “Dubai becoming a successful tourism and services hub is one such example. Another example is the increase in religious tourism in Saudi Arabia.”

Mr Ghadir’s Baring Mena Fund, which is 30 per cent invested in the UAE, has defied the frontier market struggles to return 21 per cent over five years, according to figures from trustnet.com.

The frontier markets label has been slapped on a broad range of markets that perform in very different ways. Unsurprisingly, the performance of funds targeting this sprawling and volatile sector has been variable.

Schroder ISF Frontier Markets Equity has returned a healthy 22 per cent over five years while BlackRock Frontier Markets has done even better rising 34 per cent.

At the same time, Templeton Frontier Markets fell 6 per cent over five years, and Guggenheim Frontier Markets ETF tumbled 40 per cent.

Again, you should only invest a relatively small proportion of your portfolio, typically no more than 5 per cent, and look to hold your money there for the long term rather than trying to make a quick buck.

This is an exciting investment opportunity but you need time, patience and strong nerves if you want to be crowned king of the wild frontier.

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