Forget about China and India. Here’s how to profit from a little-known market that’s exploding at a breakneck pace…
Over the past few years, one of the most popular investment strategies has been in the area of emerging markets.
China, India and Brazil have all made headlines as ‘great opportunities for investors’. The problem is, because emerging markets have garnered so much attention, the opportunities for us “Average Joe” investors to get-in and make above average returns are few and far between. But I have a solution to that…
I’ve discovered a niche where some countries’ GDP growth are not only on par with (or even exceeding) these emerging powerhouses, but their equity markets are advancing at a rate three-times faster than S&P 500.
What’s more, as I’ll explain in a bit, this niche is largely insulated from the erratic juggernaut that is the US economy.
In other words, when America sneezes, these guys won’t be the ones catching the cold.
I’m referring to what are known as “frontier markets”.
Bloomberg recently released an article saying “…the frontier represents 30 percent of the world’s population, crammed into some of its fastest-growing economies. Nourished with enough stability and free-market reforms, and the noblesse largesse of foreign investors, frontier markets are primed to go more mainstream.”
Countries like Morocco, Bulgaria, Kenya — some may consider them third-world countries. But I see them as on the cusp of becoming economic forces. In fact, half of all sub-Saharan Africa countries have averaged more than 5% GDP grown over the last two decades.
Take Nigeria for example. Last year, the Nigerian economy grew at a China-like 7% rate. But what’s more impressive is that over that same time period the Nigerian Stock Exchange All Share Index climbed an incredible 56%.
Meanwhile, the S&P 500 saw just a third of that growth, while the Hang Seng Index garnered less than 23%.
Then there’s the Philippine Stock Exchange Index (PSEi).
Just four years ago, the PSEi was nothing but a blip on the investment market radar – since then, the exchange has gained a mind-boggling 285%… making it Asia’s most expensive index.
I see an opportunity for us to move-in and capture some of these massive returns over the coming months, which is why I’m alerting the frontier markets niche to you today.
Another Reason to Buy the Frontier
Aside from the prospect of mega-sized returns, one of the main reasons I’m recommending you to diversify into this niche is that it has a relative lack of exposure to the floundering US economy and, to a further extent, the debt-laden problems in Europe.
Where news of unemployment, consumer sentiment, housing and trade in the US can often have a significant impact on emerging markets, frontier markets are less likely to flinch. That’s because much of a frontier nation’s wealth and growth is generated domestically and regionally. They also have varying degrees of trade activity with developed countries so their economies are relatively sheltered from outside shocks.
How Can We Profit?
With frontier markets getting neither the same media attention nor the recognition that emerging markets get, we have an opportunity to position ourselves on the cheap before the investing herd jumps in.
But how can we do that?
Thanks to the explosion in ETF’s, exotic markets that were once unfathomable for the average investor are now just a phone call or mouse click away.
I’ve identified iShares MSCI Frontier 100 (FM) as an ETF with strong exposure to frontier markets that’s worth considering.
Launched just last September with $10 million, Frontier 100 now boasts over $54 million in assets.
The top five countries in this portfolio are: Kuwait (27.77%), Qatar (16.58%), Nigeria (13.01%), UAE (11.80%), and Pakistan (4.58%).
The top five industries are: Financials (53.49%), Telecommunications (13.74%), Industrials (12.38%), Energy (8.02%), and Consumer Staples (6.79%).
Now keep in mind, frontier market investing carries a fair degree of risk –especially when there are threats of conflict and political instability. But an ETF such as iShares MSCI Frontier 100 diversifies you across several nations so you don’t have all your eggs in one basket.
The bottom line: if you’re on the hunt for that “home run” the payoff in the frontier could be astronomical.