We at InvestAsian say very quickly that we focus on frontier markets, believing them to be the best countries in the world for investors. But those new to offshore investment might be wondering: what are frontier markets?
For investors and economists, a country’s economy can be broken down into one of three categories based on their stage of development.
Developed markets, such as Australia and Hong Kong, are generally among the slowest growing. Population growth is usually tepid (or even negative), markets are heavily regulated but easily accessible, and there are already large international companies in any sector you could think of.
Things move along much quicker in emerging markets such as Thailand and Malaysia. Manufacturing is often a big part of the economy, foreign investment is peaking, and local businesses are just beginning to expand internationally to find their own opportunities abroad.
Beyond these are frontier markets, which are places like Myanmar and Cambodia. These are the countries where the rapid growth and high potential for returns are just beginning – perfect for a long term investor. The types of businesses which you may take for granted in your home country, such as convenience store chains and drive-thru restaurants, might not even exist yet which can make frontier markets an entrepreneur’s paradise.
As a result, frontier markets are less correlated with the rest of the global economy. Cambodia, for example, hasn’t had a recession in over 20 years. It skipped the Asian Financial Crisis of the 1990s, the tech-bubble of the early 2000s, and the more recent Global Financial Crisis of 2008.
There’s no such thing as a “recession proof” economy, but a good frontier market is as close as it gets. Most of the world is now dependent on each other. McDonalds, 7-Eleven and Walmart can be found almost anywhere on the planet. Because of this, all the developed and emerging economies get sick when the United States, China, or Europe does. Frontier markets can be exceptions to this rule.