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Posted on 28 December 2013.
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Investing in frontier markets offers an opportunity for investors to cash in on the fastest growing economies in the world. While the past decade has been a rough ride with a major economic recession and stock market crash during 2008 and 2009, taking a longer-term view, the global economy nearly doubled from $37 trillion in 2003 to $73 trillion in 2013. Quickly developing frontier and emerging markets provided most of the growth during this ten-year period, as developed economies stagnated and provided low single digits growth, at best. This trend is expected to continue for at least the next ten years, which means investors that want to capture the fastest growth in the world economy need to figure out how to invest in frontier and emerging markets.
While the emerging market BRIC countries (Brazil, Russia, India and China) have been the focus of many investors looking to invest in high growth economies, more recently frontier economies that ING Investment Management have coined PIVOTS countries (Peru, Indonesia, Vietnam, Oman, Turkey, and Sub-Saharan Africa) have become the primary focus of investors seeking the highest rates of economic growth in the world. ING Investment Management predicts that frontier market PIVOTS countries will lead world growth in coming years and provide exceptional potential for investment returns.
There are several ways to invest in frontier market PIVOTS countries or frontier markets more broadly, which are outlined below. Investing in individual stocks of companies in frontier markets is not advised, since the countries’ equity markets are not necessarily fully developed or well regulated, and direct investments in frontier market equities can be risky, costly, and difficult. The best way to invest in frontier markets is via exchange traded funds (ETFs) or mutual funds. These funds focus on specific frontier market economies or regions, and invest in companies that derive a significant portion of their revenue from frontier markets. It is best to let investment professionals that manage ETFs and mutual funds for a living figure out which frontier market securities make sensible high growth investments.
The following are some funds that can be used to invest in PIVOTS frontier market economies.
The following are some funds that can be used to invest broadly in frontier markets in many continents and regions of the world, some of which are PIVOTS countries. These funds are suitable for investors that want to expose their portfolios to a wide variety of frontier markets.
While investing in frontier markets exposes an investment portfolio to some of the fastest growing economies in the world, there are also risks associated with investing in frontier markets. The risks range from potential internal political turmoil that could put corporate profits and investments in frontier markets at risk to changes in international interest rate policies that could lead to a flight of capital from frontier markets. To diminish the risks associated with investing in frontier markets, it is a good idea to keep exposure to frontier markets within an investment portfolio to a reasonably low percentage of the overall portfolio.
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