There was fast money, mid-term investing, long term investing.
Then came BRICs, and then CIVETS (Colombia, Indonesia, Vietnam,
Egypt, Turkey, South Africa) made their debut back in late 2009,
to now even longer term plays known as frontier markets
(encompassing 26 countries) with arguably everything in between.
However, according to a report released by Citigroup, frontier
markets may only come into their own in time for your
grandkids or even your grandkids' kids.
That said, it doesn't mean there aren't opportunities in the
frontier markets.
The Citi report by Willem Buiter and Ebrahim Rahbari titled
Global Growth Generators: Moving Beyond 'Emerging Markets'
and 'BRIC'
begins: "We expect strong growth in the world economy until
2050."
Now when I read this statement I did - not a double take - but
a triple take to stop scratching my head. It's so difficult for
economists to guess what is going to happen next year in America,
let alone in 2050 in undeveloped markets. I could easily sit here
and say the S&P 500 will be higher in 2050...
The report predicts frontier markets growth to average 4.6%
annually for the next 17 years and then drop to 3.8% for
following 20 years afterwards in an explosion of the developing
economy.
The report goes on to say eleven economies are currently set
to see the strongest of the growth rates.
Five of the countries named are classified as emerging markets
by the research firm MSCI: China, Egypt, India, Indonesia, and
the Philippines.
The other six countries are found on the MSCI list for
frontier markets: Bangladesh, Iraq, Mongolia, Nigeria, Sri Lanka,
and Vietnam.
All six of these countries are politically unstable with
mismanaged economic policies causing widespread poverty; not to
mention most are considered hotspots with little to no education
systems established. However, the authors of the report see
something in these countries in the long term.
My initial reaction is if one or two of these countries truly
take their places on the world stage, it would put more pressure
on natural resources already running in high global demand with
limited quantities, such as crude oil and fresh water.
The two paragraphs below from the report basically sum up
the progression of development.
"Developing Asia and Africa will be the fastest-growing
regions, driven by population and income per-capita growth,
followed in terms of growth by the Middle East, Latin America,
Central and Eastern Europe, the [former Soviet states] and
finally the advanced nations of today...
For poor countries with large, young populations, growing fast
should be easy: Open up, create some form of market economy,
invest in human and physical capital, don't be unlucky and don't
blow it. Catch-up and convergence should do the rest."
Granted, frontier countries may only have room to move
upwards, but caution is strongly advised. History has taught us
that emerging markets may have a lot of room to improve, but they
do not always match the same in ROI.
Those who would like to put some frontier markets into their
portfolio may find it hard to find individual names traded on the
exchanges. Using funds may be the best bet in any case, providing
traders with baskets to help reduce risk.
Below is a list of funds traded on U.S. exchanges, and
remember - just because the asking price seems cheap, does make
the investment cheap. Please read the prospectus of these funds
and ETFs and drill your broker with questions.
Nile Capital Africa Fund Class A
(
NAFAX
,
quote
) this fund seeks to provide a long term total return. The fund
invests opportunistically in a focused portfolio of investments
in the equity, fixed income, cash and cash equivalent asset
classes. It normally invests at least 80% of its assets in
African companies, securities issued by or guaranteed by African
governments, their agencies and instrumentalities; and African
multi-national organizations. The fund will invest in fixed
income securities without restriction as to capitalization,
credit quality or maturity.
Harding Loevner Frontier Emerging Markets Fund Investor
Class
(
HLMOX
,
quote
) this fund seeks long term capital appreciation. The fund
invests primarily in companies that are based in frontier
emerging markets, including the smaller, traditionally-recognized
emerging markets. It invests at least 65% of its total assets in
common stock, preferred stock, rights and warrants issued by
companies that are based in the frontier emerging markets,
securities convertible into such securities (including Depositary
Receipts), and investment companies that invest in the types of
securities in which the Portfolio would normally invest. The fund
may invest up to 35% of total assets in debt securities of
domestic and foreign issuers.
T. Rowe Price Africa & Middle East Fund
(
TRAMX
,
quote
) this fund seeks long-term growth of capital. The fund normally
invests 80% of net assets in African and the Middle Eastern
companies. It may purchase the stocks of companies of any size.
The fund expects to make substantially all of its investments in
common stocks, and participation notes linked to common stocks,
of companies located in the countries of Bahrain, Egypt, Jordan,
Kenya, Kuwait, Lebanon, Morocco, Nigeria, Oman, Qatar, Saudi
Arabia, South Africa, and the United Arab Emirates
Wasatch Frontier Emerging Small Countries Fund Investor
Class Shares
(
WAFMX
,
quote
) this fund seeks long-term growth of capital. The fund normally
invests at least 80% of the fund's assets in the equity
securities (including common stock, preferred stock and
securities convertible into common stock, warrants, and rights)
of companies that are tied economically to frontier markets and
small emerging market countries. It may invest in the equity
securities of companies of any size, although we expect a
significant portion of the fund's assets to be invested in the
equity securities of companies under US$3 billion at the time of
purchase.
Market Vectors Vietnam ETF
(
VNM
,
quote
) this ETF seeks to replicate as closely as possible, before fees
and expenses, the price and yield performance of the Market
Vectors Vietnam Index. The fund normally invests at least 80% of
its total assets in securities that comprise the index. It
attempts, using a "passive" or indexing investment approach, to
approximate the investment performance of the index by investing
in a portfolio of securities that generally replicates the
index.
Market Vectors Egypt Index ETF
(
EGPT
,
quote
) this ETF seeks to replicate as closely as possible, before fees
and expenses, the price and yield performance of the Market
Vectors Egypt Index. The fund normally invests at least 80% of
total assets in securities that comprise the fund's benchmark
index. Its benchmark index is currently comprised of securities
of companies selected by the index provider on the basis on their
market capitalizations in Egypt.