Frontier Markets Emerge Amidst Global Uncertainties
As geopolitical tensions escalate and trade threats abound, investors in emerging markets are seeking refuge in frontier markets that are less exposed to the volatility caused by policy shifts.
Frontier markets, typically smaller and developing economies, offer relative safety from the unpredictable trade policies of US President Donald Trump. They present opportunities for diversification, as they are often driven by local dynamics rather than global macro factors.
Investors are particularly drawn to markets such as Serbia, which boasts robust economic growth, and Ghana, Zambia, and Sri Lanka, which have recently emerged from debt defaults and are focused on reforms.
Despite the inherent risks associated with frontier markets, portfolio managers believe they offer compelling investment potential in the current environment. They are relatively insulated from the impacts of trade tariffs and other policy shifts that are affecting mainstream emerging markets.
Local bonds in Serbia, for instance, are seen as a means to capitalize on the region's economic expansion. High-yield investments in emerging markets have also performed well during periods of global uncertainty.
While frontier markets hold promise, investors also acknowledge opportunities in non-frontier emerging economies like Turkey and South Africa. Turkey has implemented sound fiscal policies and is poised to benefit from reconstruction efforts in neighboring countries. South Africa, with its diverse commodity exports, is less reliant on US trade and could weather geopolitical storms.
However, not all emerging economies are created equal. JPMorgan has downgraded Panama's bonds due to Trump's threats to reclaim the Panama Canal. Countries that previously benefited from trade diverted from China may also face increased challenges.