Frontier markets primed for growth as access improves


Improved market access in Saudi Arabia, Romania and Myanmar over the past year is increasing the universe of investible companies in frontier markets, according to Baring Asset Management.

Iran is also highlighted as a market that is opening up, following the lifting of United Nations sanctions in January.

Frontier markets – those that are undergoing lots of development, but are too small to be classified emerging markets – have returned more than 10.3 per cent in US Dollar terms in the period between 20 January and 14 April, according to Datastream figures.

While that lags the 21.9 per cent seen in emerging markets over the same period, Michael Levy, investment manager at the EMEA and frontier equity team Baring Asset Management, argues frontier markets have long-term structural growth potential.

“Market penetration is still very low for many business activities,” Levy says. “Factors such as favourable demographic trends, which see rising incomes and affluence combine with relatively young and growing populations, continue to fuel expansion in areas as diverse as dairy production to banking.”

In June Saudi Arabia opened its stock market to foreign investors as it sought to reduce its reliance on oil wealth.

Romania has accelerated its privatisation programme, while Myanmar launched its first stock exchange last March.

Meanwhile in Iran the lifting of the sanctions and a more business-oriented environment are forecast to increase real GDP growth to 4.2 per cent in 2016 and 4.6 per cent in 2017, according to the World Bank.

Barings is invested in Vietnam Dairy Products, which according to Levy has strong brand recognition and financials, plus a dominant distribution network that acts as a high barrier to entry to competitors.

Kenyan mobile telephone business Safaricom and Bangladeshi bank Brac Bank are also part of its portfolio.