Promising Growth Prospects Attract Fund Managers to Frontier Markets

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By Shveta Pathak

Fund managers are actively tapping into investment opportunities offered by ‘frontier markets’ which include the Middle East. With their strong demographics and promising growth prospects these markets clearly hold competitive advantages compared to the developed world to invest in trade and infrastructure, which would foster their growth further, top executive of an asset management firm told ArabianGazette.com

“Frontier markets offer a new and exciting investment opportunity with strong demographics -a young and rising population- resulting in a new and upcoming middle class consumer; many countries and regions are converging in terms of economic growth and prosperity resulting in steadily rising income per capita; they are also benefitting from foreign direct investment (FDI) and overall competitive advantages compared to the developed world to invest in trade and infrastructure. Increasing economic interdependencies and trade linkages within these regions are effectively witnessing the emergence of a new economic bloc or the re-emergence of a new silk road as we like to call it,” said Marc Foss, Executive Director Middle East, Silk Invest, an asset management firm, that saw over 30 per cent rise in its assets under management (AUM) until June 2011 over a year. The company manages over $155 million assets which primarily include institutional investors from Europe, family offices and funds of funds.

Frontier Markets is an economic term coined in early 1990s, and is commonly used to describe a subset of emerging markets.

Talking about their preferred markets, Foss said in the Middle East, Saudi Arabia, Qatar and the UAE; in Africa, we like Nigeria, Morocco, Kenya, Ghana and Botswana and in Central Asia Kazakhstan, Cambodia and Turkey were among their favourites.

Sector wise, Foss said the company has a general preference for consumer facing sectors that are gaining on the interrelated social and powerful demographic trends which are creating new engines of domestic growth for these countries. Key themes are urbanisation and a rising and increasingly affluent middle class consumer. “From consumer goods, food beverages, telecoms, banks our emphasis is on consumer centred sectors and also selective construction and infrastructure given the widespread need for physical infrastructure. For instance, Nigeria plans to spend $212 billion internally on infrastructure development in a combination of public and private partnerships,” he added.

As these markets graduate to become emerging markets, Silk Invest expects huge money inflow and even stronger opportunities in these markets.

With the UAE and Qatar likely to be re-considered by MSCI at the end of the year for a potential upgrade from frontier to emerging market status, these markets would be attracting significant and relatively stable inflows of assets from global institutions and foreign investors which be a very positive development for these stock markets, analysts have said.

Moving further, he said as global economic growth reverts to its pre-industrial revolution configuration with the economic pendulum swinging back towards the East – Africa, Middle East & Asia will account for an increasing share of world economic growth in the future providing new growth opportunities for investors.

“The emerging and frontier regions have lower debt levels as a percentage of GDP compared to many developed nations and their market capitalisation is much larger than is generally perceived, and in fact taken together are comparable to the BRIC countries,” he said.

Silk Invest has recently opened an office in the Dubai International Financial Centre (DIFC) marking its third office in the MENA region. “This is very much in keeping with our philosophy of maintaining a local and on-the-ground presence in our frontier markets The transparent but demanding regulatory environment coupled with the excellent infrastructure and business facilities offered within the DIFC makes this the right choice for the company. The office will be a gateway to clients in the Middle East and eventually as a springboard to Asia,” he concluded.

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