The Next Investing Frontier?

Countries at an extremely early stage of development, such as Kenya, or markets that are relatively inaccessible, such as some Middle Eastern countries, are the focus of Cerulli’s latest report.  

Cerulli Associate’s latest issue of “The Cerulli Edge: Global Edition” examines frontier markets and evaluates the opportunities and challenges for asset managers in developing a product development strategy for these early-stage, yet potentially lucrative, markets.

Total flows into frontier market funds hit around US$2.9 billion in 2010, according to EPFR Global, but have slowed in 2011. However, recent launches have found a market: the BlackRock Frontier Markets investment trust raised $147 million at launch, the Schroders fund raised around $50 million, and a number of frontier funds have already closed to new business.

“Many of these countries are commodities-driven and, as such, should be long-term beneficiaries of the high global demand for resources. If all goes to plan, they may follow the growth trajectory of many emerging markets with increased investment in infrastructure, which will in turn lead to higher wages and consumption growth, and ultimately, to the development of an industrialized economy,” comments Barbara Wall, Editor of Cerulli’s monthly global publication.

Cerulli says fund managers must gauge whether these fund flows are sufficient to make it worth their while, or whether they are better off focusing efforts on other growth opportunities, such as building a comprehensive emerging market fund range.

For investors seeking something new, these markets have the potential, as well as the risk premium associated with such new opportunities. Frontier markets are a tough sell, with no clear end market. They are expensive to run and require an experienced team. Nevertheless, there is a case for building a presence in high-growth markets of the future, Cerulli contends.

The report can be purchased through Cerulli Associates.