An interesting piece from last Monday’s Wall St. Journal (“Rediscovering Frontier Ethic of Investing”) highlighted some important principles prevalent among frontier market investors, one of which is that the relative small size and illiquidity of said markets makes their price swings all the more volatile, as is evident by a quick glance at the article’s accompanying graph (shown right), which shows a 51% increase since March 2009 in the MSCI’s frontier index, compared with a 39% rise in the S&P (that said, the bounceback in the EM index looks even more buoyant). 

Additionally the article quoted some well-known PM’s in the arena, whose insights I always enjoy because they offer a fleeting glimpse into the philosophy and creed behind their buying decisions, which in turn will often affect which frontier markets they embrace versus which markets they shun.

For example, Lawrence Speidell, founding partner and CIO of California-based Frontier Markets Asset Management, notes that while commodities are certainly a catalyst for certain economies (he is bullish on Zambia, for instance, because it is copper-rich and its stocks have not yet kept pace with other copper-heavy countries–thus presenting an arbitrage opportunity assuming the metal does not plunge sharply following its recent ascent off dollar weakness and economic recovery), they are not the whole story.  Rather, a sort of gestalt-shift in macro fundamentals is forming, he feels, such that long-term growth is increasingly probable, and moreover underpriced from a current valuation and risk standpoint:

“The long-term story is convergence of incomes, technology, and living standards, labor costs and so on.  You should see rising personal disposable income, so you invest in consumer products, banking services.”