GLOBAL - Emerging market managers are turning their attention to frontier markets as capacity constraints lead some managers to close funds to new investors.
Currently only 23 markets are designated as developed with a further 26 designated as emerging. This leaves around another 142 countries which have the potential to offer opportunities for investors looking for exposure to fast growing economies.
David Gait, senior portfolio manager for Asia Pacific (ex-Japan) at First State Investments, said pension funds should be aware that some of the so-called BRIC (Brazil, Russia, India and China) countries, which are enjoying huge popularity with investors, were not even classed as emerging markets 10 years ago.
Gait said: “Liquidity is a key challenge in frontier markets, though it can also be an opportunity if you are prepared to allocate capital for a three to five year period.”
He added: “Some countries which don’t as yet make it on to the emerging market indexes will in the coming years become an important part of a portfolio.”
According to First State Investments frontier markets which have shown potential include; Vietnam, Kazakhstan, Botswana and Zambia. Though the emerging market specialist warned all faced challenges such as foreign debt, corruption and in some cases ethnic conflict.
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