Many investors are familiar with the emerging markets story, especially with the MSCI Emerging Index's 70% or so gain so far this year. But beyond emerging markets, Sri Lanka and Kazakhstan are examples of frontier markets that have seen more than 100% gains year to date. Emerging markets guru Mark Mobius has dubbed these countries "tomorrow's emerging markets".
In the first of a three-part series on Closing Bell, Maria Bartiromo discussed the risks and rewards of investing in frontier markets with our panel of guests.
Geoff Dennis, Global Emerging Markets Equity Strategist at Citi broke it down for us, based on the MSCI Frontier Markets Index’s coverage of 25 countries:
- Countries that were kicked out of the emerging markets index (Argentina)
- Oil-rich countries (Middle East and former Soviet Union countries)
- Emerging European wannabes (Countries like Bulgaria, Estonia, Lithuania, Romania and Slovenia, which have either joined or about to join the European Union)
- Sub-saharan African countries (Kenya, Mauritius, Nigeria and Tunisia)
- Frontier Asian markets (Vietnam, Sri Lanka and Pakistan)
And while the United Arab Emirates isn't a market that is usually on investors' radars, Dubai caught the world's attention last month after it announced a six-month postponement on the debt of Dubai World. Dennis said that the Dubai debt crisis highlights what the risks are in frontier markets, "which are very hard to get into and very hard to get out of, and when you have a liquidity boom like the one you're having now, you don't get the fundamental support to justify that".
Wasif Latif, Vice President of Equity Investments at USAA added that "there's a lot of gold mines but along with their size, they're also land mines as well". Echoing Dennis’ views, Latif said the biggest land mine was liquidity.
Dennis sees opportunity in Nigeria, as a commodity lay but cautions that they need to keep their "macro act together".
Despite its debt woes, Latif thinks that Dubai is still a place of interest, saying that the events before Thanksgiving resulted in panic selling and created many opportunities to pick up stocks on the cheap. He also sees an opportunity in Kazakhstan.
Tune in to Closing Bell next Tuesday as we continue our series. We'll be focusing on Investing Ideas in Latin America, Africa & the Middle East in the 4pm ET hour.
Liza Tan contributed to this article.
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