Opportunities aplenty in frontier markets

DESPITE uncertainty in financial markets, the case for frontier markets remains strong. Frontier markets' (FMs) stock markets are now trading at a premium to the more developed emerging markets (EMs), but offer a higher dividend yield and lower volatility. These will be themes to be discussed at the Morgan Stanley Investment Management (MSIM) Annual Global Ideas Conference from today until Friday in Singapore.

In 2013, 19 of the world's 20 fastest-growing economies were frontier countries. FM countries could add an estimated US$1 trillion in GDP over the next five years: this opportunity is too significant to ignore. We believe FM economies will sustain growth as they are starting from lower bases with relatively low levels of government debt and manageable fiscal deficits.

FMs have a history of low correlations to other markets and low volatility. As illustrated in Display 1, over the past five years, FMs have had a low correlation to both emerging and developed markets. The 30 main FMs have also shown little correlation to each other because valuations, economic cycles and development are at different levels and stages. This is why we believe in a macro- based, top-down approach that determines which FMs to invest in, and which to avoid.