With developed markets still recovering from the Great Recession and emerging markets developing bubbles that may soon burst, investors may have to look to the frontier markets in Africa and the Caribbean to diversify their portfolios. Frontier markets have the least developed equity markets among emerging markets, but they offer exciting opportunities.
According to the International Monetary Fund, 17 of the 20 fast-growing economies fall into the frontier category. They include Angola, Kenya, Ghana and Jamaica, which are attractive to investors because they are less exposed to the Western financial markets and thus are shielded from the credit crisis hammering the United States, Europe and Asia. They are also developing rapidly, with an expanding middle class and good returns for daring investors. Sub-Saharan Africa has seen higher earnings and the fastest growth in the booming telecommunications, commodities and financial sectors. Ghana, for instance, is now the largest cocoa producer while Angola is Africa’s largest oil producer. Nigeria and South Africa have a huge and expanding equity markets.
In February, capital markets across the continent and the Caribbean were mixed. Egyptian share prices rose 1.5 percent after the economy recorded the fastest growth in more than a year, boosted by tourism and construction. That forced the central bank to raise interest rates. South Africa’s main index eased 4 percent in February as oil and metals stocks fell after China sought to cool its soaring economy by curbing cheap credit. Kenya’s key index rose nearly 1 percent, led by the airline sector. Namibia’s overall index was 1 percent lower, while Mauritius shares rose 1 percent.
In the Caribbean, investors got extra yield on Jamaican bond market and the central bank announced a local debt exchange that will give creditors securities with longer maturities and lower rates. The main index in Kingston jumped 10 percent in February, the sharpest increase in more than a year. However, equity markets in Barbados and Trinidad and Tobago saw shares barely changed during the month. Still, analysts agree that investing in these markets could yield very sweet rewards.