In a recent Mark Mobius blog post, Carlos Hardenberg, senior vice president and director of frontier markets strategies at Templeton Emerging Markets Group, outlined some of the opportunities he sees in frontier markets and he debunked some of the urban myths about such markets.
Hardenberg began by saying there are some very compelling reasons why investors might want to take another look at frontier markets. These can be summed up as the following:
- Expectations for robust economic growth
- Continued macro development
- Deep discounts in valuations
- Low correlations
As for urban myths about frontier market:
The most persistent are perceived illiquidity, small market capitalisation and poorer corporate governance standards.
Each of those accusations might be true if one looks just at a narrow selection of markets, but looking at the global opportunity of the frontier space, as we do, provides a better context in our view.
When it comes to concerns about corporate governance in frontier markets, we’d champion what we consider the positive influence of active management.
Looking back at the development of emerging markets in general over recent decades, the relationship between ownership and management has been an important one. We believe most of the positive change came because of the close collaboration between shareholders and the businesses, and the constant feedback both ways.
Hardenberg also says they estimate the total daily turnover traded on stock exchanges in frontier markets is US$2.1 billion every day while the market cap of frontier market companies is $1.7 trillion – a figure they expect to increase as new companies are constantly coming to market.
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