I ran across a nice piece from last April by Heather Timmons of The New York Times that gives an overview of what it is we’re discussing and exploring here at “Frontier Markets” and why it might be of interest to certain investors in particular.

“Too many people think of emerging markets in a general basket,” but they have very definite stages of development, said Norman Villamin, head of research and strategy group investments for Citi Global Wealth Management, Asia Pacific. Citi is advising investors to concentrate on markets that are “one step below the recent maturation seen in markets like China and Korea,” he said. These markets face a “two steps forward, one step back” approach to financial liberalization, Mr. Villamin said. “The banking systems don’t function that efficiently yet,” he said, so foreign money flowing in tends to be quick, sometimes inflating prices and causing an overdone regulatory reaction.

So how does one define what a “frontier” market is, exactly? Danfonds Frontier Markets, a hedge fund that invests solely in the frontier (the fund has out performed the MSCI frontier market index, which by the way has out gunned the emerging market index; see graph below) and that also has its own blog on this subject matter as well, offers what I found to finally be a suitable, bright-line and clear-cut definition in the “comments” section following the piece:

“Frontier markets can be defined by either (1) GDP per capita below USD 1,845.61 (as opposed to emerging markets with a GDP per capita of between USD 37,530.84 and USD 2,390.90); or (2) markets which are illiquid and undeveloped thereby making it difficult to price risk.”

Timmons’ piece touches briefly on a few markets, though her inclusion of Brazil is an error and underscores the confusion between an “emerging” market (Brazil in fact is one of Goldman Sachs’ ‘BRIC’ markets–the others being Russia, India and China–that put the term ’emerging markets’ in the lexicon of investors worldwide in the first place) and a “frontier” market. She also lists “Africa” as one market, which is objectionable on many fronts. That said, a nice piece nonetheless.

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