Frontier Investor: how to invest in the next emerging markets by Marko Dimitrijevic
Judged by whether it inspires readers to go out and try it for themselves, I think Frontier Investor is a success. Marko Dimitrijevic has invested in frontier markets for more than 30 years (he set up his own firm, Everest Capital, in 1990) and draws upon those experiences to animate this book.
Frontier Investor makes the classic case for investing in markets that do not yet qualify as “emerging”: young and growing populations about to get rich; low debt levels; attractive valuations and scope for diversification.
The advantages and difficulties are illustrated by numerous case studies ranging from “Why Mongolia’s economy will quadruple (again) in the next ten years” through “Rwandan IPOs” to “My midnight meeting with Hugo Chavez”.
Although Marko gives tips on how to “do-it-yourself”, he emphasises the difficulties of investing in these markets: inaccessibility, lack of information and difficulty of opening brokerage accounts.
Not surprisingly, he concludes that active frontier market managers are worth the high fees they charge. He may also be right to suggest there is more scope in these markets for active managers to add value, though whether they can do it on a consistent basis is another matter.
Some of the case studies explain the author’s investment process, outlining the basic analysis, assumptions and simple valuation techniques that help identify cheap assets before the herd moves in.
Those of current relevance include: “Investing in Pakistan” and the case of Unilever Indonesia to inform current views on Unilever Nigeria. Most of the case studies end well but there are some examples of how things can go wrong, particularly the losses incurred during the Russian debt crisis.
The ultimate irony is that Everest was undone by one of the most consensus trades in developed markets (when the Swiss franc was allowed to appreciate in January 2015).
If one is to be critical, the book is perhaps 50 per cent too long and ran out of steam towards the end (some of the latter sections felt like afterthoughts). However, it is hard to argue with the author’s conclusion that frontier markets should be a staple part of most portfolios.
Though only representing 0.5 per cent of the MSCI All Country World Index, the author argues for a double digit allocation to these markets (after all they represent “19 per cent of the world’s PPP-adjusted GDP and comprise most of the world’s fastest growing economies”).
Turning theory into practice will be the fun part, especially with Donald Trump as US president.
Paul Jackson is head of research of Source ETF.