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By Christine Benz | 03-04-2010 09:00 AM

Why Venture into Frontier Markets

Frontier Markets Asset Management's Larry Speidell says that over the next 10 years, the people and the markets of Sub-Saharan Africa, Central and Southeast Asia, and Latin America will prosper.

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Christine Benz: Hi, I'm Christine Benz for Morningstar. I'm here at the Morningstar Ibbotson Conference, and I'm here with Larry Speidell. Larry is the CEO of Frontier Markets Asset Management. Larry, you just gave a presentation about frontier markets, and first I'm hoping you can define for our viewers what a frontier market is?

Larry Speidell: Sure, Christine. We are all now familiar with emerging markets and especially with the BRICs: Brazil, Russia, India, China. There are about 60 stock markets that are not in that emerging markets universe. And many of them are in Sub-Saharan Africa or Central Asia or Southeast Asia or Latin America. And many of them are wonderful.

Benz: So you define a frontier market as anything that's not in the MSCI Emerging Markets Index?

Speidell: That's correct.

Benz: OK. So talk about what you perceive to be the big positive attributes for investing in frontier markets.

Speidell: Well, they're unloved. They're illiquid. They're inefficient. And yet they're populated by over a billion people who are enthusiastic, optimistic, and hardworking. So our belief is that over the next 10 years these people and these markets will prosper, and we hope to be a part of that.

Benz: So it seems like there is some data at least for the emerging markets that would indicate that the economic growth has been very strong, but in some cases the market returns haven't been quite as compelling as the economies have grown. How about for frontier markets? Is there a similar disconnect?

Speidell: This is a very important controversy, and there's a lot of study going on about it, because if you look at some places--let's say in Southeast Asia at some of the Tigers, growth has been high. But P/E multiples have been high, and stock market returns haven't been great.

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