Investing in Frontier Markets: Opportunity, Risk and Role in an Investment Portfolio

As emerging markets mature, the question on investors' minds is "Where will the next opportunity come from?" The answer: frontier markets. Frontier markets include parts of Asia, Central and South America, the Middle East, sub-Saharan Africa, and Eastern Europe, and this book explains the factors underpinning the growth and success of emerging markets and why and how these will be replicated in frontier markets. Page by page, authors Gavin Graham and Al Emid guide you through the huge diversity that exists in these markets and explain why it is important to differentiate countries within regions by looking at economic development and wealth distribution, among other factors and fundamentals. Along the way, they provide sector-by-sector analyses that let you assess opportunities and risks in each frontier market; highlight strategies and tools for determining the most efficient methods for executing, monitoring, and exiting investments; and much more. If you're looking to make the most of investing in frontier markets, then look no further than this new book.

Acknowledgments ix Foreword xi CHAPTER 1 Introducing Emerging and Frontier Markets 1 Emerging Markets 2 Frontier Markets 11 CHAPTER 2 Frontier Markets by Region 19 Measures Used in this Chapter 21 Asia 24 Africa 34 Eastern Europe 42 Latin America 49 Middle East and North Africa (MENA) 56 Exotic Frontier Markets 61 CHAPTER 3 Volatility: Not the Same as Risk 71 Lessening Volatility in Emerging and Frontier Markets 72 Correlations to Other Markets (and Lack Thereof) 73 Structural Reasons for Higher Volatility 74 CHAPTER 4 Solid Investment Information vs. Media Images 79 The Middle East: Not All in Conflict 81 Vietnam: A Long–term Bet 87 Kenya: A Slow Reduction in Risk 90 Kazakhstan: Borat Painted the Wrong Picture 93 Bangladesh: Not a Basket Case 96 Serbia: A Promising Candidate 100 Sierra Leone: No Longer War Torn 103 Conclusion 105 CHAPTER 5 Economic Strengths of Emerging and Frontier Markets 107 Returns from Emerging Markets 107 The Lack of Correlation between GDP Growth and Equity Returns 109 CHAPTER 6 Past Emerging Market Upheavals and What They Can Teach Frontier Market Investors 115 Argentinean Default of 2001 116 Mexican Devaluation of 1995 118 Asian Meltdown of 1997–98 122 Russian Debt Default of 1998 125 Brazilian Devaluation of 1999 128 The Place of Fixed Income in the Emerging and Frontier Equation 130 CHAPTER 7 The Global Investment Landscape: Why Developed Markets Appear Unattractive at Present 137 Canada 140 The United States 143 Europe 147 CHAPTER 8 Online Trading in Emerging and Frontier Markets and Why It’s a Bad Idea 153 The Dangerous Appeal of Going It Alone 153 The Risks of Online Trading 155 Professional Advisors and Online Trading 160 CHAPTER 9 The Changing Role of Financial Advisors 163 Responding to Increased Challenges after the Financial Crisis of 2008–09 163 Accepting Volatility 165 Coping with Increased Reliance on Financial Advisors 167 Convincing Hesitant Clients 172 CHAPTER 10 Different Ways to Invest in Frontier Markets: ETFs, ADRs, Local Stocks and Closed–end Mutual Funds 179 Exchange–traded Funds 180 Regional Funds 184 Sector Funds 187 Single–country Funds 188 Multinational Companies with Large Emerging Market Exposure 189 Frontier Market American Depository Receipts 214 Global Frontier Funds 216 Conclusion 227 Appendix: Frontier Market Open–end Funds as of May 2013 231 Global Frontier Funds 231 Emerging European Ex–Russia Funds 232 African Funds 232 Middle East and North Africa (MENA) Funds 233 Index 235

GAVIN GRAHAM is founder and President of Graham Investment Strategy Ltd. His investment experience spans thirty years and three continents, beginning in London in 1979 with Baring Brothers & Co. Ltd and including eight years in Hong Kong, three years in San Francisco managing Asian funds, and the last decade in Toronto. Formerly, he was chief investment officer for several mutual fund companies and director of investments for Bank of Montreal Asset Management (BMOAM), where he was responsible for supervising over $50 billion in assets under management (AUM). AL EMID has forty-plus years' experience as a journalist, and this is his third book. He has reported on financial issues on the United States, Canada, South America, and the Middle East and has coordinated correspondents from all of these locales.