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The investment case for frontier markets remains strong despite the battering they have suffered over the last few months, according to Michael Hartnett, co-head of international investment strategy at Bank of America Merrill Lynch.

Mr Hartnett said frontier markets had been performing relatively well until the bankruptcy of Lehmans kicked in and the credit crunch "went global".

After that, uncorrelated countries suddenly became correlated, eastern Europe was hit by a credit crunch, and the Middle East was rocked by the collapse in oil prices, he said.

"The secular argument for frontier markets has been wounded by global recession, but not fatally. The asset class remains undercapitalised and under owned, with strong growth/potential.

"Emerging markets had 13 bear markets in the past 20 years, yet the asset class still grew from 1 per cent to 10 per cent of global market cap. Frontier investors must have long horizons and high risk tolerance."

According to Bank of America Merrill Lynch, while frontier markets will not be the first out of the recession, their valuations remain "extremely attractive" in the long term.

It conceded that frontier markets "hugely underperformed" emerging markets in the first quarter, but said that oil breaking at $58, higher inflation expectations and a weaker dollar were catalysts for a rebound in the second quarter.

In particular, the group said it saw buying opportunities in Qatari utilities, Kazakhstan and Saudi energy.

Mr Hartnett said strong urbanisation trends, particularly in Africa and Asia, should support the secular growth theme in frontier markets going forward.

"Poor countries tend to grow faster than rich ones," he added. "GDP per capita in frontier markets averages $4,000 (£2,700) versus $6,000 in emerging markets and $40,000 in developed markets."

He said the two catalysts to end the frontier bear market were higher oil prices and higher risk appetites, but he acknowledged neither was immediately likely.

Bank of America Merrill Lynch has forecast higher oil prices in 2010, but has said global bank stocks are "not suggestive of global re-leveraging anytime soon".

Areas the group recommended for investment included Quatar and other Gulf markets. While it said the Gulf markets were "very cheap" and that government support to the financial sector was "supportive", it remains concerned by banks’ asset quality, particularly in UAE.

Mr Hartnett said: "Qatar is our top pick in the Gulf on a relative basis. It will post a 5 per cent GDP growth in 2009, the strongest in the region. CDS spreads are the lowest among GCC ex Saudi countries."

He said he was particularly keen on Qatar Electricity & Water Company, a "solid defensive monopolistic play".