Frontier markets typically are underdeveloped, with strong prospects for growth and capital market expansion.
Often perceived to be the “next generation” of emerging markets, frontier market countries as a whole are experiencing soaring GDP growth. Seventeen of the 25 fastest growing countries in the world are in the frontier region. Many are experiencing a period of “catch-up” (economic convergence) as they rapidly integrate into the global marketplace.
Investors should rightly be cautious, however, about assuming that strong economic growth will translate into equity returns. Many studies have shown this link is tenuous at best and hard to predict with any accuracy. But the frontier asset class should not be relegated to simply an economic growth story.
Frontier countries represent not only the fastest growing economies in the world today; their companies are among the fastest growing as well. Over the past several years, earnings-per-share growth in the frontier markets has exceeded that of companies in both emerging and developed markets. In fact, eight of the top 10 countries with the fastest growing companies are frontier.
Even more notable, many frontier companies are achieving this EPS growth with stronger margins and lower levels of debt than either their developed or emerging market counterparts.