Russ Koesterich, CFA, the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist, has recently written a post for The BlackRock Blog saying that too many investors may be approaching frontier markets too narrowly, viewing them as a subset of the broader emerging market asset class. He then explained three reasons why frontier market stocks deserve their own strategic allocation:
- The potential diversification benefit. Over the last 25 years or so, emerging markets have become more global with stocks in emerging markets like China and Brazil now actually having a high correlation with US and European equities.
- Lower volatility. Frontier market stocks’ volatility has historically been below that of emerging markets because they are less correlated with each other compared with the correlation between equities of various emerging markets.
- Faster growth. Frontier market economies seem poised to grow faster than both developed market and emerging market economies over the next few decades thanks to better demographics e.g. young, growing populations.
Russ also commented that frontier market countries are in a very early stage of growing per capita income with the advantage being that it’s easy to catch up as frontier countries can basically adopt technology from more established markets and use it to accelerate their growth rates.
To read the whole post, Frontier Stocks: Three Reasons They’re Now a Strategic Asset Class, go to the website of The BlackRock Blog.
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