The most exciting frontier markets opportunities: From Vietnam to Pakistan, Romania to Nigeria

Annabelle Williams
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Sunset over rice terraces in northern Vietnam

Every portfolio needs diversifiers, and frontier markets are becoming increasingly relevant for investors seeking growth.

Frontiers tend to be uncorrelated with developed markets, so the investment stories will thrive – or fail – independent of events in Europe or the US. Below, we highlight four of the hottest frontier markets right now.


After suffering decades of war and unrest in the twentieth century, Vietnam has entered the new millennium ready for change.
The government has undertaken a series of pro-market reforms, with state-owned enterprises sold off, the banking system improved, and the stock market made more investorfriendly, explains Dominic Bokor-Ingram, manager of the Magna New Frontiers fund.
“The reason for investing in frontier markets is excess GDP growth over developed markets, and Vietnam’s reforms are creating GDP growth of 6 per cent a year,” he says.
The Vietnam Ho Chi Minh index has returned 42 per cent over the last three years, and its performance is attracting the eyes of international fund managers.
Labour costs are now cheaper in Vietnam than in traditional manufacturing hubs such as China, so the country is becoming one of the main destinations for businesses seek ing low-cost production.
“Vietnam’s exports to Europe were up 24 per cent last year, and that is an indication of the cost advantage they have,” Bokor-Ingram says.
An improving economy is translating into greater wealth for ordinary Vietnamese, so Bokor-Ingram has invested in dairy products company, Vinamilk.
“The first luxury food product that poor consumers buy when they get rich is dairy. Vinamilk’s sales are growing at 15 per cent a year. The company almost has a monopoly,” he says.


The recent fall in world oil prices has been damaging to Nigeria, as its economy depends on oil exports.
This will act as a short-term headwind for the economy, but over the long term, Nigeria represents a “huge opportunity” for investors, says Michael Levy, manager of the Baring Frontier Markets fund.
As Africa’s most populous nation, with 177m people, Nigeria has also overtaken South Africa as the continent’s largest economy. But while the economy has grown, banking penetration is still low, and most of the population are yet to open a bank account.
“We will see massive growth in the numbers of young people, who demand financial products in the medium to long term,” Levy says. He has invested in Guaranty Trust Bank, which has “traditionally been one of the most conservative” of Nigeria’s banks.
“It has a high quality management team who really understand how to manage the assets and liabilities on their balance sheet,” he explains.

A busy district in Lagos, Nigeria


A “basket case” for the last 20 years, Romania has turned the corner from feeble Communist economy to investment destination.
Last year, Romania’s economy was among the fastest-growing in Europe, and some fund managers believe it could be one of the next frontier markets to be upgraded to emerging market status. Typically, when index providers upgrade a country, local stock markets receive a massive boost.
Romania is a favourite for Baring’s Levy: “It is a really interesting country and is in a very strong position.” The working-age population in Romania tends to be well-educated with strong foreign language skills, and this has proven attractive to international companies seeking a base in Eastern Europe.
“We are seeing many foreign companies setting up hubs in Bucharest, and this creates opportunities in other sectors such as real estate,” Levy says.
He has bought into utility company Electrica, which should benefit from the surge in office and house building underway in the country.
Another popular choice among fund managers is Fondul Proprietatea, a company set up by the government to provide restitution for people who have had assets taken by the Communist regime. Bokor-Ingram has invested in this company, as it also owns a range of other businesses in Romania, and benefits from links to the state.


Pakistan has recently emerged as an investment destination, since the country had its first ever peaceful transition of power in 2013.
Prime Minister Nawaz Sharif won his third term in office with a reformist agenda, and has quickly set about improving the economy. Pakistan recently borrowed money on the international bond market and has privatized state industries.
“Sharif’s government came to power saying they would do everything economically that should have been done over the last 15 years,” says Bokor-Ingram. “In the first nine months of tenure, he did all that he said he would.”
Investors have responded positively to the changes underway and the Pakistan Karachi 100 index has risen 108 per cent over the last three years.
One area of opportunity is the energy sector, says Hedi Ben Mlouka, chief executive of alternative asset manager Duet MENA. The country is still afflicted by power shortfalls, and the government is encouraging the private sector to invest. Mlouka has bought shares in Nishat Power and Nishat Chunian Power.
“These companies buy fuel or gas and convert it to electricity, which is then sold on to providers. Even the most modest of improvements [to power generation] enhances the sector and continued share price outlook,” Mlouka explains.
Bokor-Ingram began investing in Pakistan six months ago and has been buying local banks United Bank Limited and Allied Bank, which have lent money to the government at high rates.
“The government is having to pay a significant premium over the current 8.5 per cent interest rate, and the banks are benefiting,” he explains.
The first luxury food people buy when they become wealthier is dairy
We are seeing many foreign companies set up in bucharest and this creates opportunities in other sectors
We will see massive growth in the numbers of young people who will demand financial products

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