Blurring the Lines | Mark Mobius

Blurring the Lines | Mark Mobius:



"There has been some convergence in terms of how one might classify emerging-, frontier- or developed-market companies—and how they might fit into investors’ portfolios. Recently, we have noted an increase in liquidity and transparency of many frontier-market stocks (the smaller and lesser-developed subset of emerging markets). We have encountered increased numbers of businesses quoted on developed-market exchanges that have a majority of their business operations, sales or earnings generated in emerging or frontier markets, and at the same time, we have also seen growing numbers of emerging-market companies acquiring businesses in developed markets, becoming true multinationals. In our opinion, suitable frontier- and even developed-market stocks can be used to add potential value to what investors might traditionally classify as emerging-market portfolios. 




Market Convergence  



Frontier markets have been of particular interest to us in recent years, as we perceive many of these markets as having good economic growth potential. Government reform efforts also present the potential for both earnings growth and revaluation for frontier-market companies.



Some have argued against investing in frontier markets because of their limited size and poor liquidity. We have not found these concerns to be justified in all cases. An overall market capitalization for frontier markets in the region of US$1.8 trillion1 and daily turnover of US$3.6 billion2 appear to us to be a very adequate opportunity. Considerable numbers of individual stocks sit within frontier markets, yet some have capitalizations and trading volumes that would place them comfortably on par with some emerging-market peers. Some banks in Pakistan and Nigeria, a telecommunications company in Argentina, and an oil and gas company in Central Asia come to mind. Moreover, we should note that, within emerging markets themselves, improving liquidity on exchanges in countries such as India means that stocks that we might once have regarded as appropriate only for specialist smaller-company portfolios now trade in sufficient volumes to be included within more traditional global emerging-market portfolios."



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