While emerging markets are continuing their domination of investment, frontier markets have been tipped as the ones to watch by Swiss & Global Asset Management.

Frontier markets such as Africa and Central Asia have a lot of offer for investors who are willing to and prepared to scratch beneath the surface, and they will be rewarded with the diversity of investable companies that are on offer.

Investors consider frontier markets as a pure commodity play, said Andrzej Blachut, head of emerging market equities, but there are other attractive opportunities. Nigeria’s growing consumer sector or infrastructure-related sectors such as cement producers are tipped by Blachut, and the weakness of local currencies provides opportunity for investors in emerging markets.

In India there is an improved situation, backed by greater private-sector participation and improved government finances.

“While the banking sector in frontier markets has been exposed to local bad debts, it has had no exposure to the toxic assets from developed countries,” said Blachut. “In many countries the loan book to deposits ratio is below 70 per cent to 80 per cent. This means banks are able to provide loans to economies without external financing, which is very expensive today.”

He added that exchange traded funds (ETFs) are not available for all markets, and frontier market indices have limited scope and are not fully representative of the trends which are driving economic growth. “We believe that the most interesting investment prospects in frontier markets can be found outside of the MSCI indices, and these are the companies which enable us to participate in the underlying economies.”

Blachut is fund manager of the Julius Baer Eastern Europe and Northern Africa funds.

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