Frontier Markets: The Last Tide
EDHEC Business School
December 1, 2012
Historically, investors constantly look at newer avenues to unlock value. They relentlessly search for an investment story that most others have neglected. Imagine, investing in a country like China or India in 1980’s. The Indian Equity Index (SENSEX: INDEX) had a base value of 100 in 1979 and has risen to around 19,000 till 10th July 2013, giving 16.80% CAGR for the past 34 years. So if you invested US$10,000 in the year 1979 your investment would have earned you US $1.9 Million by the year 2013 (Markets today are almost at same levels it was 5 years back in 2007). What if there is a similar opportunity today with markets that will be considered tomorrow’s emerging markets? That even today lays an opportunity that existed a decade back? The awareness of the risks of investing in these markets would definitely be higher than they were decades back. Equity research analysts are constantly on the look for company stories. The stocks universe itself is so big that it is impossible to do justice at a global level and hence the need for sector and country specialists. This study intends to use a top’s down approach. If a country index can give a 190x Times return, the individual stocks that form that index are bound to have much more potential. Hence a macro level conclusion is appropriate to this thesis objective. Equity has been the asset class that can be defined as a wealth creator. The thesis intends to probe further into the smaller intricacies of investing into the frontier markets and conclude if there still lays a risk worth taking with these markets and if investing does bring in the diversification benefits, aptly rewarding an investor for each unit of risk taken. Emerging markets today forms a part of most Investor’s portfolios. This thesis study will try to explore all facets of investments that would help an investor make informed decision weather a Frontier market too should form a part of his Global allocation in the portfolio.
Keywords: frontier markets, asset management, international diversification, global portfolio allocation, asset allocation, emerging market, africa, asia, middle east
JEL Classification: O57, F21, F3, G11, G15
Date posted: June 17, 2013 ; Last revised: November 17, 2013