Wednesday, December 19, 2007

Exploring frontier markets

In case you missed the recent FT article on investor James Passin and his trek through the frontier markets, we're including it again today with an additional update from the Seeking Alpha website.

What are "frontier markets" anyway?

Frontier markets are essentially the smaller up-and-coming emerging countries whose capital markets are are just beginning to develop, or those markets primarily consisting of smaller, illiquid companies. The small size of these markets and a relative lack of liquidity and information may serve as barriers to entry for larger investors and fund managers.

Here's an excerpt from a Feb. 2007 Bloomberg article on the subject:

Frontier markets, as defined by Standard & Poor's, are dominated by companies too small and too thinly traded to be ``investable'' for most fund managers. The acronym BRIC was coined by Jim O'Neill, chief economist at Goldman Sachs Group Inc., in November 2001. He said Brazil, Russia, India and China would join the U.S. and Japan as the biggest economies in the world by 2050, eclipsing most of today's developed nations.

Frontier markets have been valued at an 18 percent discount on average during the past decade. Stocks in Bangladesh, Bulgaria, Ivory Coast, Mauritius and Slovenia rose last month to their highest price-earnings ratios this decade.

``Everybody is so positive and bullish that, as a consequence, valuations have become very rich,'' said Patrick Scheuber, head of equities at Swisscanto in Zurich. ``We are not at the beginning of a cycle, but rather at the end of it.'' His firm, managing $1.6 billion, recently sold holdings in Vietnam.

So maybe now is not the time to rush into these markets, but maybe you would like to investigate further for future knowledge.

This is where the next article, "Get a Jump on Frontier Markets", comes in. This Seeking Alpha piece from Richard Shaw should provide a useful intro to the subject, along with some insight into possible future investment vehicles serving this area.

You may also wish to look at the Standard & Poor's website for info on the S&P/IFCG Frontier Market Index, and related emerging market indexes.

So if you're interested in this topic, have a look. These articles will provide a bit of insight for those who would like to know more about this developing segment of the investment universe.