For Jonathan Neill, a portfolio manager at Fabien Pictet Partners who specializes in emerging markets, there is something to be said in the defense of the frontier as a non-correlated asset class. "The financial crisis and banking crisis was not a feature of African economies," Neill said. "They laugh when Westerners say they need to go teach them how to run banking systems."
But for Neill, right now at least, there is more to be said against the frontier than in support of more investment. For one, that non-correlation story has been coming down over time as more investors recognize the frontier. He also thinks the great rush to the frontier is over, for now, and markets in Africa, in particular, have become expensive. Indeed, the Nigerian market is down over 8 percent this year. "I don't think the frontier offers much opportunity anymore. I'm much more bullish on emerging markets now from a valuation point of view," Neill said, noting that he has an 18-month minimum outlook.
Neill said that the frontier story being marketed to investors is in need of a few correctives. For one, valuation trumps demographics. "There may very well be good bets in frontier countries like Nigeria, but it's what you pay for it," Neill said. "The emergence of the middle class in Country X, or working class—these are gimmicks, just marketing stories for fund managers. What matters is valuation."
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Dickson said that as the frontier investment theme has caught on, some African investments have become expensive, but investors still need to take a long-term view.
Speidell didn't disagree with the valuation risk, either, especial for consumer stocks in Africa and African banks, but said it's a subset of the frontier story. "There are large-cap stocks in the consumer space that have been overbought, and that's part of the theme of a rising middle class and what they will buy," Speidell said, adding that he has watched price-to-earnings ratios in some frontier market consumer companies, such as food and cosmetics, increase significantly over the past six to seven years.
But he added, "There's plenty of frontier outside of Africa." He has recently been to Sri Lanka, Bangladesh and Vietnam, markets he considers to be key parts of the frontier story. Speidell's firm has 40 percent of its frontier bets in Africa, 15 to 20 percent in Asia, 15 to 20 percent in Eastern Europe, and smaller bets in regions including Central America. Frontier Market Asset Management holds 65 to 75 frontier market stocks across 30 countries.