February 2008

BEYOND OUR BORDERS: Credit Suisse picks top 10 frontier markets

Recent market events may cause investors to be nervous about their emerging market investments (not that this should necessarily be the case: see our report, p28). Yet some fund houses are still expressing optimism for markets beyond those of established emerging economies: the so-called frontier markets.

According to Lars Kalbreier, Credit Suisse’s head of global equities and alternatives research, now is the time for investors to take a serious look at frontier markets, which he says are offering some of the world’s best growth prospects.

Like other supporters of emerging markets, Kalbreir says they are not what they used to be. “Many countries still seen as emerging markets now have an economic and financial profile close to developed markets. Credit Suisse has identified markets that present the same characteristics as emerging markets before they emerged: the frontier markets.”

Kazakhstan, Morocco and Botswana are among the top-rated countries taking into consideration macroeconomic potential, human welfare, political stability and financial market development.

In a Credit Suisse report (GI, January 2008) Kalbreir writes that Kazakhstan is an oil-rich country, particularly after the discovery of Kashagan, the world’s largest oil discovery in three decades. Due to factors like this, he says, oil wealth is starting to spread across the population, with disposable incomes growing at a fast pace.

Meanwhile, Botswana, one of the oldest democracies in Africa, is the world’s largest diamond exporter, which enables the country to achieve a massive current-account surplus worth an estimated 19% of GDP in 2007. However, Botswana’s economy is moving from being solely focused on diamond exports to a more diversified economy, for instance with the introduction of call and data processing centres.

But these are just two of Credit Suisse’s top ten frontier markets. See the table above for the full list.
Kalbreir adds: “The global economic landscape has changed significantly over the past few years. Many traditional emerging markets have started to exhibit developed market characteristics. In our view, investors will now focus increasingly on ‘purer’ emerging markets, which means that investment in frontier markets is likely to increase in the medium term. We advise our clients to start building selective positions in the most attractive frontier markets.”

©  funds europe February 2008