Exploring the world’s investment frontiers

Investment frontiers often become tomorrow’s emerging markets. Here’s a closer look at the characteristics that attract some investors to frontier markets while sending others to safer ground.

Overview1

39 countries

Europe: 12, Africa: 11, Middle East: 7, Asia Pac: 6, Americas: 3

These economies offer generally high-risk, less stable investment opportunities for investors willing to bet on their future emergence as stronger, more stable markets.

22.8% of the world’s population

Plane circling the globe.

2.2% global public equity market

Frontier markets are excluded from standard global indexes offered by providers like Russell, MSCI, FTSE and S&P, mostly due to small size and illiquidity.

8.9% global gdp

Since many countries in frontier markets are in the early stages of development, collectively, they still make up a small percentage of global GDP.

Qatar1

15% Country’s GDP Growth in 2014

$323b GDP (US$)

$144,427 GDP/Capita (US$)

$173,590m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Qatar
 
 

Kuwait1

15% Country’s GDP Growth in 2014

$284b GDP (US$)

$70,992 GDP/Capita (US$)

$83,748m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Kuwait
 
 

Nigeria1

9% Country’s GDP Growth in 2014

$1,058b GDP (US$)

$6,082 GDP/Capita (US$)

$37,769m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Nigeria
 
 

Argentina1

8% Country’s GDP Growth in 2014

$927b GDP (US$)

$22,101 GDP/Capita (US$)

$31,932m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Argentina
 
 

Pakistan1

7% Country’s GDP Growth in 2014

$884b GDP (US$)

$4,746 GDP/Capita (US$)

$51,308m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Pakistan
 
 

Kenya1

5% Country’s GDP Growth in 2014

$135b GDP (US$)

$3,138 GDP/Capita (US$)

$21,969m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Kenya
 
 

Egypt1

4% Country’s GDP Growth in 2014

$945b GDP (US$)

$11,073 GDP/Capita (US$)

$16,079m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Egypt
 
 

Bangladesh1

4% Country’s GDP Growth in 2014

$536b GDP (US$)

$3,385 GDP/Capita (US$)

$26,819m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Bangladesh
 
 

Oman1

4% Country’s GDP Growth in 2014

$164b GDP (US$)

$44,062 GDP/Capita (US$)

$18,425m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Oman
 
 

Bahrain1

4% Country’s GDP Growth in 2014

$62b GDP (US$)

$51,394 GDP/Capita (US$)

$15,788m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Bahrain
 
 

Papua New Guinea1

3% Country’s GDP Growth in 2014

$18b GDP (US$)

$2,404 GDP/Capita (US$)

$11,352m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Papua New Guinea
 
 

Vietnam1

3% Country’s GDP Growth in 2014

$509b GDP (US$)

$5,621 GDP/Capita (US$)

$22,373m Market Cap (US$)

Growth of $100 (USD)
 
Sector exposures: Vietnam
 
 

Travel adventures2

Exotic locales

Countries in the frontier market segment typically offer exposure to burgeoning, native industries not seen in many developed and emerging markets. This exposure can help provide investors with distinct investment opportunities.

 
 

Early entry to potential growth

Investors who dare to venture into these far-flung countries could potentially reap high returns as GDPs are typically in the early stages of growth.

Diversification

Because frontier markets are in a different development cycle compared to developed and emerging markets, they can help provide investors with additional diversification options.

 

Travel risks

Remote access

Remote economies and a lack of index representation can make it difficult for investors to find viable inroads for capital. Moreover, industries are typically in the process of maturing.

 

Possible turbulance

Currencies and trading liquidity are typically far less dependable than even those of emerging markets.

 

Poor visibility

Governing rules and regulations, when they exist, often lack transparency and consistency. This typically leads to political systems that are less stable than those of developed countries.

 

Travel advice

Exotic locales and nascent economies can entice investors with the promise of potentially high returns. Enthusiasm should be tempered by the likelihood of extreme volatility, illiquidity and political instability.

Given these conditions, investors would be wise to stay on course by relying on experienced pilots and navigators, such as financial advisor or other investment professionals.

 

Source: 1) 2015 Russell Indexes Global Guidebook, Russell Investments, 2015
Source: 2) ”Navigating the frontier equity markets,” Russell Investments, April 2015.
Source: 3) All values stated in U.S dollars. These twelve countries make up 80% of total weighting for frontier markets.

The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.

This material is not an offer, solicitation or recommendation to purchase any security.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

Diversification does not assure a profit and does not protect against loss in declining markets. Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets.

Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets.

These views are subject to change at any time based upon market or other conditions and are current as of 12/31/2014.

This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.

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Copyright © Russell Investments 2015. Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange Group.

CORP: 10473
First use: July 2015

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