Ranked among the world’s fastest growing economies, frontier markets rely on internal growth factors more than the global financial system and its whims.
Here at InvestAsian, we focus on frontier markets and emerging economies. That’s because we think they’re the among the best countries in the world for globally-minded investors. Why though?
Nations are broken down into one of three different categories based on their stage of development.
Developed markets, including the United States and Australia, are generally the weakest from an economic perspective. Their population growth is tepid or even negative. Such markets are regulated tightly while large multinational firms already exist in any sector you could possibly think of.
Emerging markets, like Thailand and Malaysia, go through change at a much faster pace. Manufacturing is usually a big part of these economies. Foreign investment is peaking and local firms are just starting to expand internationally, finding their own opportunities abroad.
Beyond these emerging market economies are frontier markets: countries such as Myanmar and Cambodia. These are the places where rapid growth and high potential for investment returns have only recently started.
Why Are Frontier Market Investments Unique?
A middle class is just now beginning to form in frontier markets, which makes them great for long-term investors. Furthermore, strong demographic trends means that frontier markets are driven by internal growth factors moreso than the global economy’s performance.
The types of businesses that you may take for granted in your home country, like convenience store chains and drive-thru restaurants, might not even exist yet. Because of this, frontier markets are perfect for scrappy entrepreneurs and international corporations alike.
Up until 2018, Cambodia didn’t even have a global convenience store chain. Circle K and 7-Eleven recently entered the market and don’t have any real competition besides each other. Nowadays, in 2022, both companies are reaping the rewards from being first-movers.
Frontier markets are also far less correlated with major economies like Europe and the United States. In fact, some of them skipped the past three global recessions.
Vietnam and Bangaldesh, just to offer two examples, haven’t had a recession in nearly 30 years. They skipped the Asian Financial Crisis during the 1990s, missed the tech bubble of the early 2000s, and outgrew the recent 2008 Global Recession.
In the 21st century, the world’s economies depend on each other. 7-Eleven and Burger King can be found almost anywhere on the planet. Because of this, when the United States or Europe get sick, developed and emerging markets do as well.
Frontier markets are often exceptions to this rule. Cambodia, for example, doesn’t rely on foreign capital from McDonald’s because McDonalds doesn’t even operate in the country yet.
Do Frontier Market Stocks and Property Avoid Recession?
Of course, there’s no such thing as a truly recession proof economy. “Past performance is not a guarantee of future results” and anything could happen. Regardless, a good frontier market is about as close as you can get.
To summarize: frontier markets have a very rare combination of risk and return. They’re not only growing three times faster than your country is, but they probably won’t be included in the next global recession either. There’s one minor downside though…
Investing in frontier markets usually isn’t easy. It’s the main reason why these places aren’t swarmed with people scooping up assets already.
You’ll probably find entry barriers. They could be in the form of language barriers, cultural barriers, or ones set up by the government. Tasks such as opening a Vietnam brokerage account are difficult, let alone finding an honest real estate agent in Myanmar or researching stocks in the Philippines.
Plus, most people don’t want to live in Myanmar and spend valuable time figuring everything out on their own.
The “catch” of investing in frontier markets is simply a matter of research and correct implementation. It must be done correctly, and might require a great deal of on-the-ground effort.
That’s the reason why we created InvestAsian. Asia’s frontier markets have extraordinary potential, and we’ve spent over a decade learning how to profit from them. Now, it’s your turn to discover the world’s fastest growing countries.