New opportunities in frontier markets are bleeping on the radar of investors seeking ever higher returns.
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Industry analysts report a spike in interest in these new frontiers with markets in Africa attracting most attention – especially Nigeria.
Geopolitics is a factor that weighs heavily on selecting frontier markets as the politics in Africa are volatile both internally and cross-border.
And factors in places thousands of miles away can sometimes ripple out to influence African economics.
For example, several countries are moving rapidly up the ladder of key oil producers – including Nigeria – but falling oil prices and sanctions on outflows from Iran and Russia are impacting the world market.
But despite their rankings in the market place, they are still net oil importers rather than important global oil producers.
However, by their nature, argues a spokesman for Baring Asset Management, frontier markets are more likely influenced by local rather than international factors.
The firm suggests lower oil prices should have a positive effect on growth in Sri Lanka, Bangladesh and Kenya.
“The companies most likely to give the best returns are well-managed with earnings growth potential over some years,” said the Barings spokesman.
“Searching out these firms is a process of painstaking research and detailed due diligence. Investors also need a comprehensive understanding of their business model, markets and competitors.”
Barings recent investments include Brac Bank in Bangladesh, which runs the country’s leading mobile payment platform and Masan Group, Vietnam’s second largest food and drink company.
Nigeria on watch
Tipsters at New York’s Wall Street Journal favour Nigeria as the leading frontier market despite a series of economic and political problems dogging the country.
Falling oil prices and falling currency exchange rates against the dollar coupled with terrorist outrages by the militant Boko Haram group and forthcoming presidential elections have all contributed to investor doubts.
But Nigeria heads the watch list of 200 leading American companies eying opportunities in Africa.
Investment managers Schroders cite frontier markets as an area of interest because most economies in the sector have a young, growing population, low labour costs and large deposits of natural resources.
“These are markets which are expected to grow faster and further than emerging or developed economies and we feel they are an exciting place for investors looking for high yields,” said a spokesman.
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