2019 Frontier Markets Outlook? The Wall Street Journal interviews Frontier Funds

Despite the appealing valuations in many of the larger frontiers, even seasoned frontier investors are wary of jumping back in, according to Gavin Serkin, founder of UK-based consultancy Frontier Funds. 

“Everyone in the market wants to go bargain-hunting,” he told the The Wall Street Journal. “We’re seeing valuations much lower than we’ve seen for a long time, but there are few frontier markets that are genuinely uncorrelated with the major developed and emerging markets, so anxiety over strength of the dollar, oil prices, President Trump’s policies and the U.S. Federal Reserve’s plans is affecting all markets. People are still cautious going into the New Year.”

While sentiment among investors in public equities is almost universally poor, according to Mr. Serkin, one bright spot this year in the frontier investing universe has been impact investing, particularly into private equity-type funds. “Conscious capital—investors looking to create returns and have a positive social impact—started to become a much more dominant force this year for bringing capital into the market,” he said.

This year has also seen the strengthening of a trend among frontier-focused managers to maintain their exposure to countries that move out of the MSCI frontier markets index. Frontier Funds’ Mr. Serkin expects that trend to continue as Argentina, Saudi Arabia, Kuwait and, eventually, Vietnam join the emerging-markets index. “In the past, when a country was about to be upgraded you saw positive momentum then a big sell-off as frontier-specific investors sold off their holdings. You probably won’t see that to the same extent again because it’s unlikely that managers would dump, for example, Vietnam when it’s upgraded.”