Frontier markets are critical for diversification and research

The latest research with institutional investors and wealth managers across Europe who collectively manage more than $520 billion in assets under management identifies frontier markets as vital for diversification.

The study, conducted by Dragon Capital, the largest independent asset management company in Vietnam, reveals that more than half (53%) strongly agree and 46% slightly agree that frontier markets provide attractive returns diversification of emerging and developed markets.

Most investors (85%) also agree that frontier markets offer some of the best opportunities to find hidden gems in the world of investment management. More than two-thirds (67%) agreed and 18% strongly agreed.

Interest in frontier markets reflects an impressive performance last year thanks to major changes in the investment universe.

A shift from oil-sensitive stocks based in the Middle East to manufacturing and expert-led companies in Asia contributed to the MSCI Frontier Market Index’s return of 20.09% in 2021 and outperformance of the MSCI All-World Index of 1.05%**. Meanwhile, the Vietnam market returned 39% in 2021.

When asked which Asian market offers the most attractive long-term returns for investors, 26% chose Vietnam.

In terms of which factors were the most important when selecting a frontier fund manager, more than nine in ten investors said track record (95%) and longevity of the fund (93%).

Most important factors when selecting a frontier manager

Percentage of professional investors who believe this is important

Fund Manager Track Record

95%

Fund Longevity

93%

Strong focus on ESG

88%

Liquidity

88%

bottom size

85%

Fee

83%

Dr. Tuan Le Anh, Deputy CIO of Dragon Capital, the largest asset manager in Vietnam, said:Frontier markets have high GDP growth rates and are enjoying periods of rapid urbanization, growing middle class formation, rising domestic consumption, and high levels of foreign direct investment, all of which create attractive investment opportunities.

And as respondents discovered, the lack of coverage of businesses in frontier markets means there are ample opportunities to find hidden gems.

As frontier markets continue to evolve and embrace digital technology, we expect to find a growing pool of attractive stocks.”

Dr. Tuan Le Anh continues: “When investing in frontier markets, it is beneficial to have boots on the ground to help mitigate risk, so it naturally makes sense for investors to prioritize fund managers with a proven track record and demonstrable experience in delivering consistent returns.”

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