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Frontier Markets: To Boldly Go Where Few Investors Have Gone Before

Money / Investing

Frontier Markets: To Boldly Go Where Few Investors Have Gone Before

With the potential to earn returns of 12-15% per annum, here’s why you really should start paying attention to frontier markets in Asia.

Written by Xiou Ann Lim on 28 April 2017

As Asian countries such as Malaysia, Thailand, Indonesia and the Philippines start to lose their shine due to economic slowdown, investors who are hungry for high yields are beginning to turn to frontier markets.

According to Thomas Hugger – Chief Executive Officer of fund management company Asia Frontier Capital – investing in frontier markets for five to 10 years could earn returns of 12-15% per annum.

But what exactly are frontier markets? These are markets in countries that are economically less developed than emerging economies such as Malaysia and Indonesia – which are slowing down and plateauing. Frontier markets – on the other hand – are only just starting to take off.

asian frontier markets

Frontier markets: To boldly go where few investors have gone before

How are they attractive? For one, these markets aren’t saturated with investors yet. “It’s not a crowded space – there are hardly any foreign investors in these markets, which means there’s a lot of room for growth,” reveals Hugger.

How are they attractive? For one, these markets aren’t saturated with investors yet. “It’s not a crowded space – there are hardly any foreign investors in these markets, which means there’s a lot of room for growth,” reveals Hugger.

There are several reasons why Asian frontier markets are appealing. Firstly, they offer attractive returns and are relatively cheaper to access compared to emerging markets.

Secondly, they are valued attractively compared to emerging Asian countries. Apart from that, they have a much younger population growing at a faster rate as compared to developed markets – which supports future economic growth and consumption, as depicted in the chart below.

Frontier markets: To boldly go where few investors have gone before

Source: IMF

Disadvantages of frontier markets

Although frontier markets could earn you high returns, there is a downside – they are risky. After all, these are economies that are even less economically developed compared to emerging countries. Also, you have to be able to invest for the long term to maximise the earning potential, as they can be more volatile and less liquid than more developed financial markets.

 In conclusion

While frontier markets are attractive, they are high-risk due to their lack of development and stability. Emerging markets – on the other hand – are comparatively more stable, albeit more saturated.

Diversifying your investment portfolio is well worth considering as frontier markets are unique and unlike any other markets in Asia. Talk to your private bank about how best to achieve that.

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