Swedish investment company East Capital plans to launch a new fund focusing on global frontier markets, with a start slated for mid-December. The fund will invest in frontier markets - the next generation of emerging markets, spanning from frontier Asia through the Middle East and Africa to Europe and Latin America. The fund will also invest in fast-growing countries beyond the frontier, markets that today are unclassified, but form the future of frontier markets.
“At East Capital, we believe frontier markets are the next generation of emerging markets," says Peter Elam Håkansson, Chairman of East Capital, who is personally heading the Frontier Market team.
"We have almost two decades of expertise in frontier markets such as the Balkans, the Baltics, Central Asia and have also entered Asian frontier markets more recently," Håkansson explains. "Not only is this asset class very attractive, but more importantly our investment strategy based on fundamental research and stock picking is proven and works well,” says Håkansson.
East Capital already manages around $450m in regional frontier assets across asset classes drawing on its longstanding track record and experience. To take on the new frontier, East Capital has strengthened its regional investment teams, and will open a Dubai office in early 2015.
Speaking on the importance of frontier markets, Emre Akcakmak, portfolio manager at East Capital, adds: “Demographics are one of the key drivers. No matter what, young and growing populations in frontier market regions will, in the next couple of decades, continue to boost economic activity and therefore offer a vital engine for growth."
According to East Capital, frontier markets offer 9x P/E valuations on average, while developed markets are priced at 15x earnings and emerging markets at 11x. This means that frontier markets provide a unique diversification opportunity for investors.
“In fact, if frontier markets were a continent they would account for 13% of world population but only 4% of world GDP," says Håkansson. "We are taking an increasingly global perspective in our quest to find the best investments in the next generation of emerging markets.”